January 2008 ISSUE I - ADP ?· January 2008 ISSUE I ... out-of-pocket maximums for HSA ... ADP National…

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  • TECH FLEX January 2008 ISSUE I The topics covered in this issue are: Benefits:

    Expansion of FMLA for Military Families Vetoed 2007 Version of Publication 503 Released 2008 Publication 15-B Released

    Payroll: IRS Releases 2008 Publication 15 IRS Issues 2008 Form W-4 2007 Form 2441 Released

    EXPANSION OF FMLA FOR MILITARY FAMILIES VETOED On December 7, 2007, Senators Chris Dodd (D-CT) and Hillary Rodham Clinton (D-NY) announced the inclusion of their legislation, "The Support for Injured Servicemembers Act," (S. 1975) in a military spending bill. The provisions of S. 1975 would extend the benefits provided under the Family and Medical Leave Act (FMLA) by allowing the families of wounded military personnel to take up to six months of unpaid leave. The United States Senate approved the measure on December 27, 2007 and it was sent to President Bush for signature. However, on January 2, 2008, the President vetoed the entire military spending bill containing the provisions of S. 1975 because according to the President particular provisions included in the bill risk imposing financially devastating hardship on Iraq that will unacceptably interfere with the political and economic progress everyone agrees is critically important to bringing our troops home." It has been widely perceived that the veto of the military spending bill was not a result of the inclusion of the FMLA extension provision, and as such it has been reported in various sources that it is possible Congress will attempt to include the measure again in other legislation. The bill required employers to give 26 weeks of unpaid leave to employees who are caring for wounded family members and 12 weeks of FMLA leave to a spouse, child, or parent of any reservist or member of the National Guard who is called to active duty. Under the measure, employees could take leave in increments of the shortest time period tracked by an employer's payroll system. For a copy of S. 1975, please click on the link provided below: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s1975is.txt.pdf

    http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s1975is.txt.pdfhttp://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s1975is.txt.pdf

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    2007 VERSION OF PUBLICATION 503 RELEASED The Internal Revenue Service released the 2007 version of Publication 503. This publication explains the tests that must be met in order for a taxpayer to claim the credit for child and dependent care expenses. It also explains how to calculate and claim the credit. PLEASE NOTE: Publication 503 is used primarily to help taxpayers determine whether expenses for the dependent care tax credit (DCTC). It is used only as a guide in relation to expenses incurred under a dependent care spending account (DCSA). Important differences exist between what is deductible for income tax purposes and what is reimbursable under a DCSA. For example, the dollar limit on the amount of work-related expenses used to calculate the DCTC is $3,000 for one qualifying person or $6,000 for two or more qualifying persons. Whereas, the maximum amount that may be contributed and reimbursed thru a DCSA is $5,000. Further, the DCTC is calculated based on amounts paid for dependent care in the tax year while the eligibility of DCSA expenses is based on the dependent care services incurred during the plan year. Highlighted below are a few of the changes made in the 2007 version of Publication 503: Qualifying Individuals:

    The description of who is a qualifying individual has been modified to address the special rules used for determining when divorced, separated, or living apart parents can treat a child as a qualifying individual. It is important to note that these special rules apply only to the DCTC. Under a Section 129 DCSA, the non-custodial parent cannot seek reimbursement for expenses paid for dependent care.

    Earned Income Definition:

    In accordance with the final dependent care expense regulations, Publication 503 now provides that for purposes of the DCTC, earned income no longer includes nontaxable employee compensation. For example, unemployment compensation is not defined as earned income. However, nontaxable combat pay may be included in earned income when figuring the credit for child and dependent care expenses even if the recipient has chosen not to include it in earned income for the earned income credit or the exclusion or deduction for dependent care benefits.

    Employment-Related Expenses:

    Publication 503 revisions explain when expenses for care during a temporary absence from work or while working part-time are considered employment-related. Changes and clarifications have also been made to incorporate provisions of the final dependent care expense regulations regarding other topics (e.g., fees and deposits, transportation expenses, and expenses for care while a parent who works nights is sleeping and the other parent is working). These rules apply to the DCSA as well as the DCTC.

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    Alternative Minimum Tax (AMT): The updated Publication 503 indicates that for 2007, the credit for child and dependent

    care expenses will not be allowed against AMT, unless Congress passes legislation that would allow the credit for another year. However, since Publication 503 went to print, the Tax Increase Prevention Act of 2007 (H.R. 3996) was enacted (December 26, 2007) which allows the use of the credit against the AMT for tax year 2007.

    For a copy of the 2007 Publication 503, please click on the link provided below: http://www.irs.gov/pub/irs-pdf/p503.pdf 2008 PUBLICATION 15-B RELEASED The Internal Revenue Service (IRS) released the 2008 version of Publication 15-B (Employer's Tax Guide to Fringe Benefits), which contains information for employers on the employment tax treatment of various fringe benefits, including accident and health coverage, adoption assistance, dependent care assistance, educational assistance, group-term life insurance, health savings accounts (HSAs), and transportation benefits. The 2008 publication is substantially similar to the 2007 version, but reflects increased 2008 limits for certain benefits including qualified transportation benefits, maximum annual contributions and catch-up contributions for HSAs, out-of-pocket maximums for HSA-compatible high deductible health plans, and the latest compensation figure used to determine which officers are key employees. The 2008 publication also explains that for certain fringe benefit purposes, more-than-2% shareholders in S corporations are to be treated like partners in partnerships, not like employees. For a copy of IRS Publication 15-B Employer's: Tax Guide to Fringe Benefits (For Benefits Provided in 2008), please click on the link provided below: http://www.irs.gov/pub/irs-pdf/p15b.pdf IRS RELEASES 2008 PUBLICATION 15 On January 3, 2008, the Internal Revenue Service released the 2008 Publication 15 commonly known as Circular E - Employer's Tax Guide. Publication 15 includes the 2008 Wage Withholding and Advance Earned Income Credit Payment Tables which should be used in determining the correct amount of employee tax withholding in conjunction with the employees submitted Employees Withholding Allowance Certificate (Form W-4). Highlighted below are a few of the changes made in the 2008 version of Publication 15: Social security and Medicare tax for 2008 Social security tax should not be withheld after an employee reaches $102,000 in social security wages for 2008. However, there is no limit on the amount of wages subject to Medicare tax.

    http://www.irs.gov/pub/irs-pdf/p503.pdfhttp://www.irs.gov/pub/irs-pdf/p15b.pdf

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    Social Security Administration and magnetic media Employers and authorized reporting agents requesting verification of names and social security numbers of between 51 and 250,000 employees can no longer use magnetic media to submit their requests to the Social Security Administration. Employers can upload a file through the Social Security Number Verification System (SSNVS) and will usually receive the results the next government business day. Substitute Forms W-4.

    After October 10, 2007, an employer cannot accept substitute Forms W-4 developed by employees. For a copy of the 2008 Publication 15, please click on the link provided below: http://www.irs.gov/pub/irs-pdf/p15.pdf

    IRS ISSUES 2008 FORM W-4 On December 21, 2007, the Internal Revenue Service released the 2008 version of the Employees Withholding Allowance Certificate commonly known as Form W-4. Form W-4 provides the information necessary for the employer to determine the amount to withhold from the employees wages for federal income tax (FIT). The information provided on Form W-4 includes the number of withholding allowances the employee is claiming, his or her marital status and any additional amounts the employee wishes to have withheld. This information in conjunction with the withholding methods and tables presented in Publication 15 determine the amount of FIT that should be withheld from an employees pay. The 2008 version of the Form W-4 only changed slightly in comparison to the 2007 version. Other than the year shown on the form, the only significant change was in relation to the standard deductions (see below). Deductions and Adjustments Worksheet Standard deductions were adjusted as follows: married filing jointly or qualifying widow(er) increases from $10,700 to $10,900; head of household increases from $7,850 to $8,000; and single or married filing separately increases from $5,350 to $5,450. For a copy of the 2008 W-4, please click on the link below: http://www.irs.gov/pub/irs-pdf/fw4.pdf 2007 FORM 2441 RELEASED The Internal Revenue Service (IRS) released Form 2441 ("Child and Dependent Care Expenses") and its accompanying instructions for the 2007 tax year. Form 2441 is a dual-purpose form that is required to be filed with a taxpayers Form 1040 to determine the amount of their dependent care tax credit (DCTC) or to establish that the amounts reported in Box 10 of

    http://www.irs.gov/pub/irs-pdf/p15.pdfhttp://www.irs.gov/pub/irs-pdf/fw4.pdf

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    Form W-2 representing benefits received by an employee under an employers dependent care assistance plan (DCAP) do not constitute taxable income. The IRS also released Form 1040A (Schedule 2), an abbreviated version of Form 2441 for taxpayers who file the short Form 1040A and its accompanying instructions. The 2007 versions of both forms are substantially the same as the previous years version. However, the instructions to both forms were modified to note that for purposes of the DCTC, earned income no longer includes nontaxable employee compensation such as unemployment compensation. However, special rules apply to nontaxable combat where such pay may be included in earned income when figuring the credit for child and dependent care expenses even if the recipient has chosen not to include it in earned income for the earned income credit or the exclusion or deduction for dependent care benefits. The revised instructions, in accordance with final dependent care regulations issued in 2007, stipulate that expenses for care during a temporary absence from work or while working part-time may be considered employment-related. However, expenses for sending a child to summer school or a tutoring program may not be considered employment expenses. For a copy of Form 2441 and Instructions, please click on the link provided below: http://www.irs.gov/pub/irs-pdf/f2441.pdf and http://www.irs.gov/pub/irs-pdf/i2441.pdf For a copy of Form 1040A (Schedule 2) and Instructions, please click on the link provided below: http://www.irs.gov/pub/irs-pdf/f1040as2.pdf and http://www.irs.gov/pub/irs-pdf/i1040as2.pdf

    Please contact ADP National Account Services for further information at:

    21520 30th Drive SE Suite 200 Bothell, WA 98021 Phone: (425) 415-4800 Fax: (425) 482-4527

    ADP National Account Services does not make any representation or warranty that the information contained in this newsletter, when used in a specific and actual situation, meets applicable legal requirements. This newsletter should not be construed as legal advice. Your legal counsel should be consulted on all specific fact situations.

    **Please note that the information provided in this document is current as of the date it is originally published.**

    http://www.irs.gov/pub/irs-pdf/f2441.pdf and http:/www.irs.gov/pub/irs-pdf/i2441.pdfhttp://www.irs.gov/pub/irs-pdf/f1040as2.pdf and http:/www.irs.gov/pub/irs-pdf/i1040as2.pdf

    January 2008 ISSUE I2008 PUBLICATION 15-B RELEASEDOn January 3, 2008, the Internal Revenue Service released thHighlighted below are a few of the changes made in the 2008