New Changes to Form 5500 for Plan Sponsors and Administrators
Beginning January 1, 2010 the IRS requires that all Forms 5500 are filed electronically through the new ERISA Filing Acceptance System (EFAST2). Due to this new requirement, the EFAST Website has been updated to provide filers with a variety of tools and guidance as well as real-time online access to financial information about private sector employee benefit plans.
The new website will publish the entire Form 5500, including schedules and attachments filed under EFAST2, (which include copies of the audited financial statements that are attached to Form 5500) on the internet for public review.
To comply with this new requirement, plan sponsors or administrators have the following two options in preparing Form 5500.
Option 1: Use the free web-based filing application available on the Department of Labor's (DOL) EFAST2 website at www.efast.dol.gov, to complete and file Form 5500.
Option 2: Use a third-party service provider and have them complete the electronic Form 5500 through approved software.
Register Early!
As plan sponsors or administrators, if you choose to prepare Form 5500 using the EFAST2 website, you will need to register for an EFAST2 account to prepare, sign and submit the completed Form 5500. Given the importance of the Form 5500 information and data, the DOL recommends that plan sponsors or administrators register on EFAST2 early as over 1 million filers are expected. .
For plan sponsors or administrators who will be using approved third-party software it is important to discuss the filing process with the third-party administrator and determine how the return will be signed. The DOL issued guidance regarding the EFAST2 electronic filing requirements stating that plan sponsors or administrators must register for a PIN, which represents the electronic signature. The plan sponsor or administrator must electronically sign the plan's Form 5500 before it is filed with EFAST2 by personally affixing the PIN to the electronic submission. The PIN signature attests that the signer has reviewed the Form 5500 Series filing and that the information is true, correct and complete to the best of the signer's knowledge.
Plans may still request an extension of time to file the Form 5500 Series by filing Form 5558 before the regular due date of the return. However, unlike in prior years, a copy of the Form 5558 is no longer required to be attached to the filing. A copy of the completed extension request must be retained with the filer's records. There were also changes made to the Form 5500 itself.
As discussed above, there are many changes that may affect the filing of your Form 5500 for the plan year ended December 31, 2009. We recommend that you communicate with your third-party service provider to determine how your Form 5500 will be prepared and signed. As plan sponsor or administrator, if you choose to prepare the required Form 5500, we recommend that you register early with the EFAST2 system. If you have any questions, please feel free to contact Cheryl Kenitzer at 605-348-1930 or cherylk@caseypeterson.com or Tina Froelich at tinaf@caseypeterson.com.
Health Care Reform Act – Changes for Businesses
May 25, 2010
The passage of the Patient Protection and Affordable Care Act of 2010 (as amended by the “Reconciliation Act” or Health Care and Education Reconciliation Act of 2010) completely changed the nation’s health care industry. The two combined laws include more than $400 billion in new taxes imposed on as well new revenue received from employees and individuals. By 2019, the new laws will have expanded insurance to an estimated 32 million people.
There are a number of key changes affecting individuals, small business and large business owners. Below is an overview of these new provisions.
Businesses
Tax credits to certain small employers that provide insurance. The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer's regular tax or its alternative minimum tax (AMT) liability.
Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000.
Years the credit is available. The credit is initially available for any tax year beginning in 2010, through 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.
Calculating the amount of the credit. For tax years beginning in 2010 through 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer's non-elective contributions toward the employees' health insurance premiums. The credit phases out as firm-size and average wages increase.
Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees' health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.
Most small businesses exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”), most small businesses won't have to worry about this provision because employers with fewer than 50 employees aren't subject to the “pay or play” penalty.
For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn't offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit (also allowed under the new law) will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect January 1, 2014.
The “Cadillac tax” on high-cost health plans. The new law places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.
Here are the specifics: The new tax, which applies for tax years beginning after December 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals).
Hiring Incentives to Restore Employment (HIRE) Act March 18, 2010
On March 18, President Obama signed into law the Hiring Incentives to Restore Employment Act of 2010. The centerpiece of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. The new law exempts qualified employers from having to pay the employer's 6.2% share of the Social Security payroll tax on any unemployed workers hired after February 3, 2010 and before January 1, 2011. This relief will have no effect on the employee's future Social Security benefits, and employers would still need to withhold the employee's 6.2% share of the Social Security taxes, as well as income taxes.
Individual mandate. The new law contains an “individual mandate”—a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty after 2013. Under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016. Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment.
Premium assistance tax credits for purchasing health insurance. The health care legislation provides tax credits to low and middle income individuals and families for the purchase of health insurance. Specifically, for tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an Exchange.
Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be subject to a tax increase on wages and a new levy on investments.
Higher Medicare payroll tax on wages. The Medicare payroll tax is the primary source of financing for Medicare's hospital insurance trust fund, which pays hospital bills for beneficiaries, who are 65 and older or disabled. Under the provisions of the new law, which takes place in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over the threshold.
Medicare payroll tax extended to investments. Under current law, the Medicare payroll tax only applies to wages. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000. Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (capital gain). Net investment income is reduced by properly allocating deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax.
Floor on medical expenses deduction increased from 7.5% of adjusted gross income (AGI) to 10%. Under current law, taxpayers can take an itemized deduction for unreimbursed medical expenses for regular income tax purposes only to the extent that those expenses exceed 7.5% of the taxpayer's AGI. The new law raises the floor beneath itemized medical expense deductions from 7.5% of AGI to 10%, effective for tax years beginning in 2013.
Limit reimbursement of over-the-counter medications from HSAs, FSAs, and MSAs. The new law excludes the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account (HRA) or health flexible savings accounts (FSAs) and from being reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA), effective for tax years beginning in 2013.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The new law increases the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after December 31, 2010.
Limit health flexible spending arrangements (FSAs) to $2,500. Under current law, there is no limit on the amount of contributions to an FSA. Under the new law, however, allowable contributions to health FSAs will capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Dependent coverage in employer health plans. Starting March 30, 2010, the new law extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to include any child of an employee who has not attained age 27 as of the end of the tax year. This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for such a child. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child who has not attained age 27 as of the end of the tax year.
Excise tax on indoor tanning services. The new law imposes a 10% excise tax on indoor tanning services. The tax, which will be paid by the individual on whom the tanning services are performed but collected and remitted by the person receiving payment for the tanning services, will take effect July 1, 2010.
Liberalized adoption credit and adoption assistance rules.For tax years beginning after December 31, 2009, the adoption tax credit is increased by $1,000, made refundable, and extended through 2011. The adoption assistance exclusion is also increased by $1,000.
Hiring Incentives to Restore Employment (HIRE) Act
On March 18, President Obama signed into law the Hiring Incentives to Restore Employment Act of 2010. The centerpiece of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. The new law exempts qualified employers from having to pay the employer's 6.2% share of the Social Security payroll tax on any unemployed workers hired after February 3, 2010 and before January 1, 2011. This relief will have no effect on the employee's future Social Security benefits, and employers would still need to withhold the employee's 6.2% share of the Social Security taxes, as well as income taxes.
Employers claim the payroll tax benefit on the quarterly 941 form. The 941 form will be revised to allow for this change for the second quarter of 2010. The exemption applies to wages paid after March 18, 2010 and before January 1, 2011. Whatever tax forgiveness that exists from March 19 until March 31 will be credited against the employer's general Social Security liability for the second quarter of 2010.
All new hires must verify unemployment for at least 60 days prior to his or her start date. During these 60 days, the qualified individual must not have been employed for more than 40 hours. The IRS is currently developing a form for employees to verify unemployment.
The qualified individual can replace an employee that leaves voluntarily, is terminated for cause or due to other circumstances, such as a factory closed for lack of demand. In other words, an employer may qualify for the incentive by rehiring workers who have been previously laid off.
In addition, if the new hire works for 52 consecutive weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold has been reached, to be taken on their 2011 tax return. Pay to employees for the second half of the 52 weeks should be at least 80% of the pay of the first half. This 52-week threshold is important to note. For example, if an employee leaves at week 51, the employer does not receive any of the credit.
Some additional features include:
The tax benefit applies to businesses, agricultural employers, tax-exempt organizations and public colleges and universities. Household employers cannot claim this benefit.
For workers that would otherwise be eligible for the Work Opportunity Tax Credit, the employer must select one benefit or the other for 2010.
A qualified individual may be hired for any number of hours since the benefits are based on 6.2% of any salary paid.
An employer cannot hire family members and receive this benefit.
The Act creates a similar set of rules allowing for payroll tax holiday for railroad retirement taxes.
Business Consulting & Accounting Services Firm in Gillette, WY Acquired by Casey Peterson & Associates
August 18, 2009
Gillette,WY - There is now a new resource for business consulting and tax needs in Gillette, Wyoming. Casey Peterson & Associates, Ltd., a CPA firm based in Rapid City, is pleased to announce their recent acquisition of Gillette accounting firm, Morgan & Associates, CPA PC. This addition allows the South Dakota born company to extend their consulting services and expertise to meet the tax and accounting needs of the northeastern Wyoming trade area.
The Wyoming CPA firm, Morgan & Associates, provides financial planning, accounting and tax services to both individuals and businesses. In addition to these services, Casey Peterson & Associates will offer resources to serve Gillette businesses in need of an audit, compilation, review, business valuation, management consulting, and medical billing, among other professional accounting services provided by the Rapid City base of this certified public accounting firm.
“Morgan & Associates shares our philosophy on client service. We wish to maintain that level of service as well as provide additional resources to the community of Gillette,” said Casey Peterson, President of the Rapid City and now Gillette accounting firms. “We are adding two new people in the Gillette office to work with DeAnn in the transition.”
Casey Peterson & Associates, Ltd. is a locally owned full-service CPA firm. They are an independent member of BDO Seidman Alliance, a nationwide association of independently owned local and regional accounting firms, sharing a dedication to exemplary client service.
Premium assistance tax credits for purchasing health insurance. The health care legislation provides tax credits to low and middle income individuals and families for the purchase of health insurance. Specifically, for tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an Exchange. 