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Q1 2010 - FUTA loans. According to the Employment & Training Administration, as of December 24, 2009, 25 states plus the Virgin Islands now have outstanding loans from the Federal Unemployment Account. Those states are: Alabama, Arkansas, California, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Virginia and Wisconsin.
Q2 2010 - Federal. Ways and Means Committee Chairman Sander Levin (D., Mich.) and Senate Finance Committee Chairman Max Baucus (D., Mont.) have released the legislative text of the American Jobs and Closing Tax Loopholes Act (H.R. 4213), which will provide critical tax cuts and support for American workers through the end of this year. The relevant unemployment insurance provisions included in the legislation include:
Extension of Emergency Unemployment Compensation (EUC) program. The Emergency Unemployment Compensation (EUC) program is scheduled to phase-out at the end of May 2010. This program provides (depending on a state’s unemployment rate) up to 53 weeks of extended benefits. The bill would extend the EUC program through December 2010.
Extension of Extended Benefits (EB) program. 100% federal funding for the Extended Benefits (EB) program is scheduled to phase-out at the end of May 2010. This program provides up to an additional 13 to 20 weeks of benefits in certain states (i.e., 13 weeks for states at or above 6.5% unemployment and another seven weeks for states at or above 8% unemployment). The bill would extend full funding for the EB program through December 2010.
Extension of Federal Additional Compensation (FAC). Federal Additional Compensation, which increases unemployment benefits by $25 a week, is scheduled to phase-out at the end of May 2010. The bill would extend FAC through December 2010.
Eliminating the penalty for part-time employment in the Emergency Unemployment Compensation (EUC) program. The legislation coordinates EUC benefits with regular benefits by providing states with a number of options to allow EUC claimants to remain eligible for the EUC program when they become newly entitled to state unemployment compensation if switching to state benefits would reduce their weekly UI check by at least $100 or 25%.
The four provisions are estimated to cost $47.130 billion over 10 years.
National research program
Michael O’Toole, Esq. Senior Director of Public Relations for the American Payroll Association (APA), discussed what the IRS may be looking for during executive compensation audits at the 28th Annual APA Congress that was recently held in Washington D.C.
O’Toole reminded attendees that the IRS has begun National Research Program audits. The IRS will be contacting 2000 employers each year for three years for employment tax examinations. The IRS plans on using the results to determine trends in employment tax compliance in several areas including: worker classification, fringe benefits, information reporting, and officers’ compensation. The idea is to determine the actual size of the “tax gap” and then implement strategies to reduce it. The IRS figures that small business is where the “tax gap” is the largest. Out of 48 audits by the IRS, 21 were small businesses (20 in Texas and 1 in New York), O’Toole noted.
Fringe benefits
The IRS will check the accounts payable register with the cash disbursement register. In addition, the IRS will analyze a particular benefit by:
identifying the particular fringe benefit and start with the assumption that its value will be taxable as compensation to the employee;
checking to see if there are any statutory provisions excluding the fringe benefit from the executive’s gross income; and
valuing any portion of the fringe benefit that is not excludable for inclusion in the executive’s gross income, according to O’Toole.
O’Toole pointed out that IRS audit guidelines direct the IRS examiners to look at the following items:
determine the department responsible for approving and processing payments to executives and officers;
review the Executive Compensation Committee Minutes, reports, etc.;
review loan agreements between the corporation and executives/officers;
identify all payments to, or on behalf of, the executives/officers;
inspect the employment contracts and or/or severance agreements to identify salaries and benefits paid to the executives;
sample monthly expense reports submitted by executives, to determine if there is an accountable plan and if the plan meets the requirements if IRS Code Sec. 62(c);
search for the executive’s name, social security number, or title in accounts payable, to identify payments to executives that were not included on a Form W-2 or a Form 1099; and
request a list of the specific payroll codes or accounting codes that relate to expenses/expenditures for executives, and use them to identify payments to executives that may be taxable compensation.
O’Toole noted that some of the specific fringe benefits the IRS will look at include sky boxes, cultural entertainment suites, awards, bonuses, club memberships, corporate credit cards, executive dining rooms, transportation, chauffeurs, cell phones, laptops, relocation expenses, employer-paid vacations, loans, and stock-based compensation. (Executive Compensation Audits: What is the IRS Looking At? May 26, 2010.)
Q4 2011 - General.—Credit reduction states in 2011. A "credit reduction state" is a state that has not repaid the money it borrowed from the federal government in order to pay its unemployment benefits. The Department of Labor determines annually if such states exist. If an employer pays wages that are subject to the unemployment tax laws of a credit reduction state, that employer must pay additional federal unemployment taxes when filing its Form 940. For 2010, Indiana, Michigan and South Carolina are credit reduction states, which means that employers in these three states will pay extra taxes in 2011 (2010 taxes are payable in 2011).
Instead of receiving the full 5.4% credit, employers in Indiana and South Carolina will receive 5.1% (5.4% minus 0.3% disallowed to a first-year credit reduction state) so they will pay 1.1% in federal taxes and not 0.8% next year. Michigan was a credit reduction state in 2009 so its employers will lose 0.6% of the 5.4% credit as a second-year credit reduction state and will pay 1.4% in taxes. Note that Michigan employers may apply for a state tax credit to offset some of this expense.