While the repeal of the heath care bill as a whole failed to pass yesterday (all the Democrats voted against the repeal/all Republicans voted for repeal), a separate amendment to the bill (S.AMDT.9) passed easily with an 81-17 margin.

The primary purpose to this amendment was to repeal the portion of the bill that expanded the 1099 reporting requirements to a level that would have easily crippled many businesses – especially hitting smaller businesses hard. Generally speaking, without the repeal, the current 1099 rules would have expanded to include payments made to corporations and payments made for tangible goods. Think of all of the Corporations that you deal with on a daily basis – like Wal-mart, Staple’s, Harris Teeter (or other grocer). All of these would have required a 1099 if you paid them more than $600 in the year. There are also a lot of details that I won’t go into because now that it is repealed, it is a mute point. Just be happy as a small business owner that you don’t have to do this! It would have been really expensive and/or time consuming to administer.

I can’t imagine why any Senator would vote against the repeal of this provision in its current state. It is over reaching and cumbersome. It would have been nearly impossible for the average business to fully conform to the law. It would have been a nightmare to enforce. And at the end of the day, it accomplished nothing in its current state. There would have been tons of double reporting and the numbers reported to the IRS would mean less than the ones they get now. Nonetheless, these 17 Senators voted against the repeal:

Akaka (D-HI)

Carper (D-DE)

Durbin (D-IL)

Franken (D-MN)

Gillibrand (D-NY)

Harkin (D-IA)

Inouye (D-HI)

Lautenberg (D-NJ)

Leahy (D-VT)

Levin (D-MI)

Mikulski (D-MD)

Murray (D-WA)

Reed (D-RI)

Reid (D-NV)

Sanders (I-VT)

Schumer (D-NY)

Whitehouse (D-RI)

As far as the Health Care Act as a whole, many Senators, including South Carolina’s own Lindsey Graham, have vowed to continue their fight to repeal the bill – in whole or in part. Along with Senator John Barrasso of Wyoming, Senator Graham introduced The State Health Care Choice Act that would allow states to ‘opt-out’ of Obamacare. This is far from passage and as you might imagine it will be a long and hard fight before there is closure on the Obamacare issue.

One of the steps we recommend to clients who use independent contractors and who therefore face a heightened risk of a costly IRS payroll tax or benefits audit, is a quick review of some of the key things the IRS tells its agents to look at in determining whether a worker is really an employee.

The primary inquiries fall into three categories. Who has financial control of the job? Who can exercise control over how the worker performs the specific task? And how do the parties themselves view the relationship? When reviewing the checklist, keep in mind that the IRS will make its decision based on the whole picture, not just a single factor.

Workers are more likely to be classified as independent contractors if they:

• Make a significant investment in business property (a home computer is not significant);
• Pay their own business expenses;
• Receive a flat fee that is not based on an hourly or similar rate;
• Are not prohibited from doing work for other companies;
• Can pay subcontractors to get the job done;
• Are not performing services as an integral part of your regular business;
• Have a contract with an enforceable liquidated damages provision;
• Can make a profit;
• Can suffer a loss.

Workers are more likely to be classified as employees if they:

• Are given specific instructions and on-going training in how to get the work done;
• Cannot work for others;
• Have expenses paid by your company;
• Are paid with a salary or hourly wage;
• Do not have a significant investment in their trade or business;
• Are an integral part of your regular business;
• Receive direct reimbursement for all, or almost all, expenses;

Less important is:

• Whether or not the work is performed on the business’s premises;
• Whether the worker has flexibility in setting hours;
• Whether the relationship is temporary or short-term;
• Whether the work is full- or part-time;
• Whether the worker performs services for one or more businesses.

If you suspect from this list that there might be a problem, we would be happy to come in and do an audit of your hiring practices and suggest effective solutions if necessary.

All businesses make payments to vendors. But are you required to report these payments to the IRS? It depends on who you are making payments to and the amount being paid during the year.

Various types of Forms 1099 must be provided to certain type of payees by January 31, and to the IRS by February 28. Here’s a rundown of some of the more common payments that may require an information return.

• Payments of $600 or more to contractors or other services providers (other than corporations) must be reported to the recipient and to the IRS on Form 1099-MISC.
• Payments to attorneys for business-related services must be reported to the attorney and to the IRS. These payments must be reported on Form 1099-MISC regardless of the amount and regardless of whether the attorney is incorporated or not.
• Rents totaling more than $600 paid to an individual landlord, partnership, or estate (but not rents paid to a corporation) must be reported on Form 1099-MISC. (However, rents paid to a real estate agent are generally not required to be reported.)

These forms must be mailed to the recipient by January 31 and to the IRS by February 28.

Bear in mind that the penalties for failure to comply with these information-reporting requirements can be stiff. For example, you can be hit with a penalty as high as $100 for each return that is filed incorrectly or is not filed on time and deductions on tax returns may be disallowed in audits.

Health Insurance Premiums Paid to 2% Shareholders
The Internal Revenue Service requires health insurance premiums paid by Subchapter S corporations for employees owning more than 2% of the corporation and/or their family members (“2% shareholders”), to be treated as additional wages to the employee. These wages are subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA. Beginning with 2009, if these premiums are not included on the W-2 of the 2% or more shareholders, they may not be deducted.

Group Term Life Insurance
The value of company-provided group term life insurance in excess of $50,000 must be included in the employee’s income and is subject only to FICA and Medicare withholding. The value of includable compensation is calculated according to the following table:

UNIFORM PREMIUMS FOR $1,000 OF
GROUP-TERM LIFE INSURANCE PROTECTION
———————————————————–
5-year Cost per $1,000
Age Bracket for one month
———————————————————–
Under 25 $0.05
25 to 29 .06
30 to 34 .08
35 to 39 .09
40 to 44 .10
45 to 49 .15
50 to 54 .23
55 to 59 .43
60 to 64 .66
65 to 69 1.27
70 and above 2.06

For 2% shareholders, the entire amount of premiums paid must be included as income on the shareholder’s W-2, subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA.

Personal Use of Auto
When providing an employee (including shareholder/employees in corporations) the use of a company-provided vehicle, a value representing the personal portion of usage of the vehicle must be included in the employee’s W-2 income. The value computed must be included in the employee’s W-2 as wages and is taxable for federal income tax, FICA, Medicare and FUTA. Although FICA and Medicare withholding is required, federal withholding is not required if notice was provided to the employee of the Company’s decision not to withhold by January 31st.