Business Consultants & Certified Public Accountants

Have You Checked your 2018 Federal Tax Withholding?

By Ted Landis, CPA, CFP®

A government report was recently issued estimating 30 million people (over 21% of taxpayers) will find they have had too little federal tax withheld and will owe money when they file their 2018 income tax returns.  As you may recall, the federal withholding tables were updated in March 2018 as a result of the Tax Cuts and Jobs Act passed in 2017.  Employers should have had all employees complete a new W-4 in March, but the responsibility falls to each taxpayer to make sure they’re withholding the proper amount.  Request a copy of your W-4 from your employer to ensure you’re using the 2018 version.

Due to the major tax law and the withholding table changes the IRS is urging everyone do a “paycheck checkup” as soon as possible.  This paycheck checkup the IRS has recommend would involve working through the 2018 Form W-4 or working though the IRS’s Withholding Calculator that can be accessed through the IRS website at https://apps.irs.gov/app/withholdingcalculator/.

So now that we’re well into the dog days of summer (although it seems more like monsoon season) and you’re probably stuck inside with air conditioning anyway, what could possibly be more fun than to think about your tax situation?  Take one of your missed opportunities to sit poolside or under the beach umbrella to do a paycheck checkup by visiting the IRS website and make sure you’re having the proper amount of federal income tax withheld from your paycheck.  If you have concerns or questions about your 2018 tax situation, please contact your PBGW accountant at 215-997-6700.

Health Insurance Options

Are you a sole proprietor or small-business employer? Is your health insurance too expensive or completely unaffordable? Keep your eyes open for more information on new entities known as association health plans. The President signed an executive order last year and the Department of Labor issued its ruling. The changes may provide opportunities for lower-cost group health insurance. Different states may also have different rules that you should become familiar with. You should certainly do your own analysis of your specific situation, and your insurance provider may be able to advise you in this area. As always, you may contact our firm for additional consultation.

July 2018 starts the penalty phase of new PA 1099-MISC rules

Earlier this year we announced the changes that the Pennsylvania Department of Revenue was making with Form 1099-MISC reporting through our newsletter and our website (see February blog post below).  This change applies to businesses operating in PA who pay non-employee compensation or business income to individuals or entities outside PA or to disregarded entities (such as LLCs) who have a non-PA resident member.   (Think about those to whom you issue a 1099-MISC with Box 7 payments.)  This change also applies to lease payments made in the course of a trade or business to a non-PA resident lessor who is an individual, trust, or an estate by a lessee of PA real estate.  (Think about those to whom you issue a 1099-MISC with Box 1 payments.)

We wanted to take this time to remind you that if the above scenario applies to you, you should be withholding 3.07% PA tax on payments to these individuals or entities.  Although PA had not been assessing penalties for failure to file for the first two quarters of this year*, PA will start assessing penalties beginning with the third quarter.  If you need help better understanding the impact on your company/entity, please don’t hesitate to reach out to your PBGW accountant or go the PA Department of Revenue website.  (*If the 3.07% tax was withheld in the first or second quarter, you were/are required to make timely deposits and reporting.)

It’s important to note that although the due date for Form 1099-MISC filing isn’t until January 31, 2019, you need to take action on this immediately if you haven’t already.  Our blog post from February gives some helpful reminders on how to stay on top of these vendor payments throughout the year.  You can find the official guidance on Act 43 here.

 

 

Philadelphia Wage Tax

The Philadelphia wage tax rate changes each year on July 1st.  Every paycheck dated after June 30th must be taxed at the new wage tax rate.  The new reduced tax rate for Philadelphia residents is 3.8809%; non-residents subject to Philadelphia wage tax will now be taxed at the rate of 3.4567%.  Although a wage tax reduction may be exciting to hear there will be no noticeable change in your paycheck.

New Jersey Employers Should Prepare Now for July 1, 2018

Jill Scheetz, PHR, SHRM-CP

On July 1, 2018 the Diane B. Allen Equal Pay Act (new EPA) becomes effective.  At first blush, you might think your company has nothing to worry about.  However, when the prize for plaintiffs who win a jury’s (or the NJ Division of Civil Rights’) opinion is treble damages, employers should be doing their due diligence to ensure their pay practices comply before the law goes into effect.

The Diane B. Allen Equal Pay Act amends the New Jersey Law Against Discrimination (NJ LAD), making discrimination in wages on the basis of any protected class (not just gender) an unlawful employment practice.  Under the NJ LAD, employers are prohibited from discriminating in the rate or method of wages against an individual based on race, creed, color national origin, nationality, ancestry, age, marital status, civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy, sex, gender identity or gender expression, disability or atypical hereditary cellular or blood trait of any individual, or liability for service in the armed forces.  The new EPA looks not only at wages but includes benefits as well when considering “compensation.”

If you haven’t already, business owners should be working with your HR and/or payroll staff to analyze current pay rates and benefits for all employees.  Ensure job descriptions and the company’s tracking system for education, training, certifications, and experience are up to date.  In addition, the company should be using a tracking system for production quantity and/or quality levels if these could be used in determining pay rates.  Once you determine which employees are performing “substantially similar work,” you need to look at pay rates and benefits and ensure that these employees are compensated at the same rate, unless there is a legitimate business necessity that warrants the differential.  Further, the company should review their employee handbook and company policies to ensure future compensation rates are calculated equitably for employees performing substantially similar work and that any differences are well documented.  The employee handbook and company policies also need to make clear that retaliation against employees who request, discuss, or disclose compensation or compensation differentials to coworkers, an attorney, or government officials is subject to corrective action, up to and including termination.  This is because treble damages may be awarded to an employee who wins a claim of employer retaliation for such disclosures.

A final note on the new EPA is that the law allows for a statute of limitations of six years (versus two years for the NJ LAD), and that an unlawful employment practice occurs each time the employee experiences compensation discrimination; i.e., each paycheck paid to an employee is a separate act.  Therefore, employers should take reasonable action to comply with the new EPA now to help limit your liability.

Tax Scam Alert

Scammers’ tactics are always evolving to try to stay ahead of the news in an attempt to catch individuals off guard. This is especially true during tax season. We hear the warnings on the evening news and in news articles. PBGW wants to remind all our clients to be aware of the tactics that have been used and to be wary of anyone—no matter how convincing or how threatening they may be—who may be trying to gain access to your personal information or bank account information.

The IRS will not contact taxpayers by way of email, text messages, or social media to request personal or financial information, and they generally won’t rely on phone contact unless they’ve already sent several notices via the United States Postal Service. When the IRS does request payment, the IRS representatives will always ask that payments be made to the United States Treasury and they will give you the opportunity to question or appeal the amount owed. The IRS will NOT call to demand payment via a prepaid debit card, gift card, credit or debit card, or wire transfer. Nor will they threaten to send the police or other law-enforcement officials to arrest you, or threaten deportation or the suspension of your business or your driver’s license. If a caller uses any of these tactics or becomes hostile or insulting, it should tip you off that he/she is trying to scam you out of your hard-earned money.

Regardless of what your caller ID shows and the personal information the caller may have about you, which might lead you to believe that he/she is the official they say they are, don’t let your guard down. The Internet has more details about you than you care to know, all accessible with a few clicks of a mouse, and scammers can use caller ID spoofing to make the number appear as “IRS” on your phone. The top area codes from which these scams are currently coming are 202 (Washington, DC), 206 (Seattle), 314 (St Louis), 315 (New York), 415 (San Francisco), 470 (Atlanta), 631 (Long Island, NY), 646 (NY City), and 786 (Miami). To report IRS phone scams, you may call the Treasury Inspector General for Tax Administration at 800-366-4484 and/or contact the Federal Trade Commission at www.FTCcomplaintassistant.gov.

Now that some taxpayers may be expecting a refund, scammers may be sending emails posing as the Taxpayer Advocacy Panel (TAP) concerning your refund. Do not respond or click the links embedded in the email. TAP does not deal with individual taxpayer’s refunds, nor will they request individual taxpayer’s information. If you receive such an email, you can make the IRS aware of it by forwarding it to [email protected].

Of course, if you have concerns about an issue with the IRS or receive an IRS notice, we encourage you to contact your accountant and let them help you resolve the issue.

New W-4 Form for 2018

The IRS has released the 2018 W-4 form, which reflects the changes in the Tax Cuts and Jobs Act. We encourage employers to have all employees complete the new W-4 form so that their employees might not have too much nor too little tax withheld from their paychecks during a year when many are uncertain of how they will be impacted when they file their 2018 individual tax returns.

You can download the new form at the IRS website https://www.irs.gov/pub/irs-pdf/fw4.pdf.

The Old & the New W-4

Anne Kelly, CPP

When changes are on the horizon, it’s a good time to look at current practices and how we need to change to keep up with the changing environment.  The 2018 Form W-4 has not yet been released due to the recent rate and bracket changes made in the Tax Cuts and Jobs Act.  (However, the new tax withholding tables are in effect, and you need to be sure that your business is using them for all payrolls dated February 15 or later.)  When the 2018 form is released, employers are required to put it into use within 30 days of its release and stop using the 2017 version.

PBGW and CASI Payroll Plus strongly encourages employers to have all of their employees complete the 2018 Form W-4 when it is released, which we expect to be sometime around the end of this month or beginning of March.  This will encourage employees to consider their tax situation and contemplate how next year’s tax filing might look.  I’ve worked in payroll long enough to have had a number of clients’ employees complain to their HR or payroll department about owing more tax than they can afford and wanting to put blame on the company or the payroll processor for the situation.  Of course, if the employer is following the employee’s current W-4, the employer is not to blame for the employee’s tax situation.  We note, however, that no HR, payroll, bookkeeper or other employee or owner should give tax or investment advice to an employee, unless the advisor is a professional advisor paid by the employer to do so.  Instead, employers should tell their employees to speak to their own tax advisor.

As we look for changes to the W-4 form, we take this opportunity to point out general requirements and best practices related to this important employee form:

  • Make sure that the W-4 you are using with employees is the full form including instructions (currently two pages).
  • A signed W-4 is required to make a change in an employee’s withholding.  An employer should never make a change based on an employee’s verbal or emailed request.
  • An employer is required to begin withholding according to the employee’s newly completed W-4 form no later than the start of the first payroll period ending 30 days from the day the employer receives the form.  This includes time for your payroll company to process the change.
  • Employers MUST have an employee who claimed exempt on their W-4 complete a new W-4 no later than February 15*, or the employer MUST withhold based on the prior valid W-4 (without an exempt status) or withhold at the single status with 0 allowances.  *For 2018 only, this deadline has been extended to February 28.
  • Employers must retain copies of each employee’s most current W-4, and prior forms at least 4 years after the date it was last used.

Please call Anne Kelly, Payroll Administrator, or your accountant if you have questions about your W-4 forms.

PA Makes Big Changes to Form 1099-MISC

Alyssa Giulianelli, CPA, MBA

In Pennsylvania, Form 1099-MISC reporting is no longer a task to think about only at year-end.  Starting in 2018, some non-employee compensation and rental payments that your organization reports on Form 1099-MISC requires PA tax withholding and regular return filings.  Read on for what you may need to do now—not at year end—to be compliant and avoid penalties and interest.

Pennsylvania withholding is now required on payments of $5,000 or more paid annually as:

1)      PA source non-employee compensation or business income paid to a non-PA resident individual or disregarded entity (e.g., LLC) that has a nonresident member

2)      Lease payments made in the course of a trade or business to a non-PA resident lessor who is an individual, a trust, or an estate by a lessee of PA real estate.

Lease payments include rents, royalties, bonus payments, damage rents, and other payments made pursuant to a lease and is reported in Box 1 of Form 1099-MISC.  Non-employee compensation are those payments that you have been reporting in Box 7 of Form 1099-MISC, such as payments to independent contractors and other payments made to individuals for services in the course of your trade or business.  Tax is to be withheld at the rate of 3.07%.  The state tax withheld will be added to box 16 when you file your 1099-MISC returns in January 2019, and your state withholding tax ID will be added to box 17.

If you participate in either of these two activities and you don’t already have a PA employer withholding account, you will need to complete the PA-100 (PA Enterprise Registration) at www.pa100.state.pa.us.  If you already have a PA employer withholding account, which you use to file your employee withholding tax payments and reports, you can use the same account number for your 1099 withholding.  If you wish to keep the two accounts separate you can do so by completing the PA-100 for an additional account.  The employer withholding/1099-MISC (e-TIDES) account is needed before you can start sending the Commonwealth payments for the tax withheld or filing reports.

Tax payments are made through the e-TIDES system similar to employer withholding, on a semi-weekly, semi-monthly, monthly, or quarterly basis, depending on the amount of your total tax withholding.  For new withholding accounts, payments made the first year will be remitted on a quarterly basis (due the last day of April, July, October, and January for the immediately preceding three months, respectively).  Thereafter, if the annual 1099 withholding tax is over $20,000 per year ($5,000 per quarter), you will remit taxes on a semi-weekly basis.  For withholding totaling $3,999 – $19,999 annually, you will be a semi-monthly filer; $1,200 – $3,999, a monthly filer; and less than $1,200, a quarterly filer.  If you wish to remit your 1099-MISC withholding along with your employee withholding, under one account, then your deposit frequency will follow the same schedule as your payroll.

PA Department of Revenue just released information this week that they will not assess penalties and interest for an entity’s failure to withhold the 3.07% tax on payments made through June 30, 2018.  However, if the tax is withheld from payments prior to June 30th, you must remit payments timely according to the quarterly schedule, or face penalties and interest.  All payments that fall under Act 43 of 2017 provisions made on or after July 1, 2018 must follow withholding requirements noted in this article.  Therefore, it’s important that you have your PA withholding account set up and ready for payments well before the October 31, 2018 filing deadline (or earlier if you withhold earlier).

As an example, if you plan to pay an independent contractor, who is a New Jersey resident, $5,000 within the year for repairs and cleaning of your PA office, your payments will gross $5,000 but will include $153.50 of PA tax withholding.  Therefore the net payment would be $4,846.50.  It’s important to note that tax reciprocity does not apply to 1099 payments; tax reciprocity applies only to W-2 based employee compensation. Taking the Commonwealth’s July 1st revised deadline into consideration, please remember that payments made to vendors from January 1 through June 30 still count towards the $5,000 threshold.

If you haven’t been doing it already, we strongly suggest that you make it company policy that no company disbursements be made without first getting a completed and signed Form W-9 from your vendors.  As soon as you contract with a vendor, have them complete this form before you begin business with them.  Enter the recipients tax ID into your bookkeeping system and keep W-9s on file.  Form W-9 is available at https://www.irs.gov/pub/irs-pdf/fw9.pdf.  Pennsylvania does not have their own version of the W-9 form.

If you have questions about this new tax requirement or need help completing a PA-100, please contact your accountant at PBGW.