Bear in mind: Private letter rulings (PLRs) only apply to the companies seeking them. But they do give you an idea of how IRS looks at certain issues.

In this case, employees sued the company for unpaid leave and vacation time. As part of the settlement, the court ordered the company to pay attorney’s fees for the employees in the suit. According to the PLR, the awarding of attorney’s fees is essentially a reimbursement of an expense. Therefore, it’s not subject to taxes or reporting.

You can the download the PLR here to see all the details.

• 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.

Keep these tips in mind to minimize your extra work — and make sure you’re covered if IRS has any questions about what you sent when:

• When sending W-2s and 1099s, make a copy of the postmarked envelopes for your files. It shows that you sent the documents on time and confirms that you had the right address from the start.
• If a form is returned by the postal service, keep it in the original envelope. If the employee or vendor provides you with a new address, you can merely send the entire package in a new envelope. If you don’t hear from them, hold the docs for 4 years — to show any future auditor that you did your required filing.
• For 1099s that need to be reissued, there’s a check box to indicate if it’s a duplicate or a correction. For W-2s, you’ll need to write “reissued statement” in the upper-right corner.

Bonus: If you have a lot of requests for duplicate W-2s or 1099s, consider this time-saver. IRS allows you to charge a nominal fee, say $5 or so, to reissue lost forms. You’d be amazed how many “lost” documents are found once people realize they’ll have to pay for a new copy.

Just be sure the document was actually lost or misplaced. You can’t charge for a duplicate if the person says he or she never received the original.

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.

The process, known as TIN masking, is needed because W-2s and 1099s are usually mailed. Given the sensitive information inside – and the prominent “Important Tax Document” notice on the front — they’re particularly vulnerable to being stolen and used to facilitate identity theft.

The value of TIN masking is clear — for payees. How much it benefits Payroll and A/P is still up for debate. It would give your company some protection from con artists trying to use your data for nefarious purposes. But because there are no firm guidelines on how exactly TIN masking would be handled, it’s impossible to say how much extra time and effort it would take you to comply. But the rules would most likely apply to Forms W-2, 1099, 1098 and 5498.

IRPAC made several suggestions for IRS to include when developing TIN masking guidance for companies, including the following requirements:

1. Working with state agencies, the Social Security Administration, taxpayers and Accounting pros to define criteria for when masking would apply and how it would be handled.
2. Educating the general public about what TIN masking would mean to them, and how they can ensure accuracy of their forms and the tax returns they file using those forms.
3. Looking for other ways to prevent identity theft.

Do you think it’s time to start TIN masking– or is it not worth the effort? Are there other trouble spots that leave companies and/or their workers vulnerable to fraud? Sound off in the comments.

Here are five situations A/P and Payroll folks see just infrequently enough to make them tricky. Test yourself — or your co-workers — to see how well they know the ins and outs of IRS’ regs. Answers below, courtesy of the American Institute of Professional Bookkeepers.

1. An employee passed away during the year, and your company paid death benefits — but not under a plan. Those benefits are reported on Form ________.
2. One of your independent contractors is paid $1,000 per contracted job, plus any substantiated expenses for which he submits receipts. On the 1099-MISC, you should include the total of all payments and expenses. True or False.
3. A new employee insists he can use his W-2 as IRS notification of a change of address. True or False?
4. Last year, your company gave every employee a fruit basket (valued at $25) for the holidays. This year, everyone got a $25 gift card to the local grocery store instead. Both gifts are treated the same way for tax purposes.
5. Once a year, your company hosts a holiday party for employees. You don’t have to treat that as taxable income. True or False?

Answers & explanations

1. Form 1099-R
2. False. Substantiated, reimbursed expenses aren’t considered income and shouldn’t be included on the 1099.
3. False.
4. False. A gift card is considered a cash equivalent. Any gift of cash — or a cash equivalent — is taxable.
5. True.

IRS just revised Publication 1179 “General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W2-G and 1042-S.” It lists the most recent requirements for acceptable substitute forms as well as instructions for filing.

Download the publication here.

IRS just released Publication 1220, “Specifications for Filing Forms 1098, 1099, 5498 and W-2G Electronically or Magnetically.”

The publication lists the latest specifications for filing these returns and forms, including copies of Forms 4419, 4804, 8508, 8809 and Notice 210.

Publication 1220 also highlights recent changes, including the filing method modifications and programming changes to Transmitter T records, payer A records and payer B records.

To get all the details, download the publication here.

If the bill becomes law and IRS discovers you’ve misclassified someone, your company might have to pay damages to the employee (for missed benefits) and fines of up to $10,000.

With an estimated 10 million misclassified ICs out there, it’s not unthinkable that you have one or two on your books, especially if you work in certain industries, like construction, that are known to have chronic problems with classification.

To make sure your company’s not at risk, you might want to review the differences between ICs and employees with hiring managers. Key: Be sure they understand there are real penalties for confusing the two. This isn’t just about Accounting wanting to follow some esoteric procedure.

If your company has a lot of ICs who are former employees, or workers who have temporary or part-time schedules, consider reviewing their files too. Automatically classifying temps and former employees as ICs is a common mistake – if your company has done it, you’ll want to make the corrections sooner rather than later.

If you have multiple undelivered W-2s each year, it won’t be long before you’re holding a stack of forms with invaluable info for would-be identity thieves.

To keep all those forms secure, many companies are scanning the documents to store them as electronic files — and then shredding the originals.

It fulfills IRS requirements and saves you much-needed storage space. Plus, having them in one central place makes retrieval — or eventual deletion — a snap.