• New withholding rates. The “Making Work Pay” tax credit will most likely be implemented by having Payroll make two withholding adjustments: one in June of this year, and another at the start of Jan. 2010. (The maximum credit each year is $400 for singles. Because the ‘09 credit is effective mid-year, the weekly withholding will have to be re-adjusted in 2010.)
• COBRA coverage/reporting. Employees who are terminated between Sept. 1, 2008 and Dec. 31, 2009 are eligible for lower premiums on their COBRA coverage, starting Feb. 17, 2009. Eligible employees will now pay 35% of the premium. The rest will be paid by the employer — but you can recover the subsidy through a credit on your payroll tax deposits. (Note: The subsidy applies only to former employees whose income is less than $125,000 a year; or family income of under $250,000 a year.)
  That creates a few tasks for Accounting and Benefits pros: You’ll need to contact eligible former employees who rejected COBRA to let them know they are eligible at the new lower rate. You’ll also need to get up to speed on the reporting fast, since the first round is due for 1Q ‘09.
• Monitoring COBRA reimbursements from the feds. Related to the point above, if your COBRA premium subsidy is more than your tax deposit, you’ll have to request — and wait for — reimbursement from the feds. So far, there’s no word on how quickly that will be processed.
• Transportation fringe benefits. The new monthly limit on benefits for transit passes and vanpools has been increased to $230 per month, the same as for qualified parking. It’s in effect from March 2009 through December 2010.

In addition to these changes, you can expect employees will be confused about what they’re eligible for, what forms they have to fill out, etc. Be prepared for a slew of e-mails and phone calls. In particular, you may have many more employees who want to update their W-4s due to new tax credits that were tucked into the non-business portions of the law.

Consider putting together a resource you can hand out to answer the questions you’re more likely to hear. Even an e-mail with some links to IRS information releases can go a long way toward reducing how many times your phone rings over the next few weeks.

You can see the entire text of ARRA here.

Starting with Tax Year ‘11, all “payment card transactions” will have to be reported on information returns, just like all your other vendor payments — but in this case, you’ll be relying on the card issuer or other third-party processor to hand over the vendor’s name, address, Taxpayer Identification Number (TIN) and the gross amount paid.

All of this is to make sure that those payments (a) get reported and (b) get taxed properly. The rule also drives home the point that these transactions are subject to backup withholding if you don’t have a TIN for the vendor –  just as any other payment would be. The problem there is, you can’t backup withhold on a payment that’s already been made.

For that reason, the rule also allows card issuers and other payment processors to immediately start submitting the names and TINs of vendors in their networks to IRS’ TIN Matching Program. The hope is that by getting a running start, the payment processors can confirm accurate TINs for every vendor and avoid having to do any backup withholding.

A new form 1099 needed?

Two things are still up in the air:

1. How exactly these transactions will be reported, and
2. How you and your card processor will need to interact to ensure all the correct info is recorded and filed.

It may require a new form altogether, or IRS may opt to simply add a few lines or boxes to the existing 1099-MISC. It may also require you and the bank or other third party that facilitates these payments for you to get together to revamp processes, confirm transaction records, etc.

The good news is: You have two years to prepare — and IRS still has time to work out the kinks. We’ll keep you posted on any developments.

You can read all the details here.

There’s a new rule in effect for 2009: In the coming year, you’ll need to file the new Form 941-X when you realize a mistake has been made.

Even though the new procedure involves filing a new form, it should actually be easier than the “old” way of making corrections: You can file the correction right away instead of waiting for your next quarterly report (and hoping you don’t forget it.)

Form 941-X can be used to report over- or underpayments. It’s expected to be available by early February, so it’ll be ready for use in the first quarter of ‘09.

Click here to see a draft version of the form.

Just in time for year-end, IRS has thrown a rule change at you.

Fortunately, if you’re affected, it actually means a little less work for your company.

If you have nonqualified deferred compensation you’ve paid to employees, independent contractors or others, you just got a little extra time.

Those payments are supposed to be reported on either a 1099-MISC (Box 15A) or a W-2 (Box 12, Code Y), depending on the payee’s status. But IRS issued interim guidance that you will not have to report those payments for Tax Year ‘08.

Note: Payees are still expected to pay whatever taxes they may owe on that compensation — a point you’ll probably want to clarify when you explain the change to any affected payees.

Notice 2008-115 is in effect until further guidance is issued. You can learn more about the issue here.

These changes are still in the planning stage, but they’ll give you an idea of what you can look forward to — eventually:

• More interactivity — IRS wants to be able to deliver B-notices, penalty assessments and similar notices electronically, just like you can submit tax info to the Service. The move would save the feds money, and save you much-needed time.
• “Unattended transmission” — Ultimately, IRS’ goal is for your computer to send transmissions directly to its own computers without requiring a human to intervene at any point.
• Validation of received transmissions — IRS is hoping to be able to provide validation of received reports and transmissions. The idea is to save time and money for both you and IRS by letting you know right away if there’s an error or other transmission issue that requires attention.

That’s especially true when it comes to IRS. The feds are moving aggressively to streamline filing procedures, modernize software and make more info and services available to you online.  

It seems to be working. IRS says that visits to its Web site were up 30% last year and there was a whopping 100% increase in businesses using e-filing.

To encourage the trend, IRS is rolling out new e-services that are open to tax pros, and “electronic return originators” who actively participate in the e-file program. The services include:

• Transcript Delivery System – which allows you to request and receive account transcripts, wage and income statements and more.
• Electronic Account Resolution — which lets tax pros send and receive account info to expedite problem solving, and
• Disclosure Authorization — which lets you complete certain forms and receive acknowledgement of receipt electronically.