New W-2 Changes Cause Confusion

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Along with the health care changes that we discussed in our previous blog post, President Obama's new laws bring change to our old friend: the W-2. Starting with the 2011 tax year (the W-2 you will received in 2012), employers will be required to report the value of health insurance premiums provided for each employee. 

This announcement caused a tremendous uproar because there have been many reports indicating that these insurance amounts would be taxable.  However, rest assured that these reports are incorrect.  Though the value of health coverage provided by employers must now be listed separately on the W-2, it will not be added to taxable wages.  Our current law states that health insurance is not taxable and the new health care laws do not change this.

The reason behind this change is simply that Congress wants to tell employees how much is being spent on their health benefits each year.

IRS to Audit 6,000 U.S. Businesses

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Business Alert:  the IRS is to conduct employment audits on 6,000 U.S. companies in search of unpaid employment taxes.

Starting February 2010, the IRS launched a three-year auditing project to collect data to identify areas of noncompliance.  2,000 firms (including nonprofits & governmental entities) will be selected at random each year to be examined. 

The government estimates that about $345 billion worth of taxes goes uncollected each year.  A deputy IRS commissioner said last month that "a significant portion" of this tax gap comes from unpaid employment taxes.  This new project aims reduce that gap by ensuring that all U.S. companies are paying to fund Social Security & Medicare benefits. 

The following are areas that auditors will be interested in:

• Worker Classification:  Are workers properly classified as employees or independent contractors?   This includes executives rehired as consultants, dual status employees, and employee leasing arrangements.
• Fringe Benefits (including expense reimbursement arrangements and non-cash benefits):  Problems arise in cases where employees use company cars, planes, vacation homes, ect. for personal use.  The IRS wants to ensure that usage of these benefits are taxed accordingly.
• Executive Compensation:  fringe benefits, executive retirement contracts, golden parachutes, and stock options.

Although there is nothing you can do to prevent your business from being selected for an audit, there are proper steps that can be taken to avoid penalties assessed.  We advise you to seek assistance from an accountant or attorney to review your employment tax record keeping.  If an issue is self-found and addressed, the penalties are much less severe than they would be if the IRS found them.  

Should you have any questions, or wish to discuss this further, please do not hesitate to contact us at 704-341-9611. 

Nina Olson's advice to Congress - big help or big yawn?

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Taxpayers all over the nation should be thanking Nina Olson, our National Taxpayer Advocate, for trying to keep the IRS up to par.  Since 2001 Nina has been pushing Congress to improve their services for taxpayers.  This year in her annual report she singled out "poor telephone services" as the IRS' most serious issue:

The IRS has set a target for 2010 of answering 71% of calls (this means that 3 out of 10 people calling the IRS hotline wont get through to an actual person).  And to make matters worse, callers who do get through will have an average wait of 12 minutes. So this year, Olson offered a solution: increase IRS staff so that 85% of calls can be answered with an average wait time of five minutes.  

So, we will see if our advocate's criticisms are taken note of by Congress or if it is answered with only a big yawn.  

We encourage you to take use of the IRS website.  If you need to track your refunds we offer a refund tracker link on our website.  And if you are brave, the toll-free help line for individuals is 800-829-1040.