By Scott Mezistrano, CPP

For tax-year 2011 and beyond, there will be no more advance payment of the earned income tax credit. Eligible individuals will still be able to claim it on their personal income tax returns, but employers may no longer advance a portion of it with each paycheck.

This change is a provision of HR 1586 (Public Law 111-226, Section 219), signed into law by President Obama on August 10.

Besides requiring that this function of payroll systems be turned off, payroll professionals will need to communicate this change to their employees. Although it has not yet been officially announced by the Internal Revenue Service, this should involve a change to Forms W-2, W-3, 941, and 944, and the elimination of Form W-5. Forms W-2c, W-3c, 941-X, and 944-X will likely retain the box or line related to the advance earned income credit at least until the statute of limitations closes on tax-year 2010 (April 15, 2014).

Employee on Severance Still Eligible for HIRE Act

By Scott Mezistrano, CPP

If an employee received severance wages during the 60 days prior to hire by a new employer, does that prevent him or her from being a "qualified individual" under the HIRE Act? "No, it would not disqualify the employee," said Joseph Tiberio, the IRS's Acting Chief of Employment Tax. Therefore, assuming the employee met the other criteria to be a qualified individual, the employer could enjoy the relief from the employer share of social security tax on the employee's 2010 wages and possibly take the business tax credit for employee retention.

This and many more facts were revealed at the August 5 conference call between the IRS and payroll industry leaders

The severance situation was not included in the IRS's recently expanded list of frequently asked questions (see PAYROLL CURRENTLY, Issue No. 8, Vol. 18, page 1), but APA has been asking the IRS to address it. Tiberio did say, however, that his position might be different if an individual was fired by, received severance from, and then was rehired by the same company.

Unaddressed Circumstances

APA is asking the IRS to answer the following questions:

1.     Company A acquired Company B. Can employees who were qualified individuals working for Company B continue to be qualified individuals while working for Company A?

2.     A qualified individual transferred from one subsidiary to another (different employer identification number) within a controlled group of companies. Can he continue to be a qualified individual?

Two Forms 941-X Simultaneously Supported

A new Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, will be out by mid-August. It's being revised to correspond to the changes to Form 941 for the second through fourth quarters of 2010 due to the HIRE Act. Contrary to the IRS's previous announcement, they will also continue to accept filings of the current version of the 941-X. Of course, anyone making an adjustment to any line related to the HIRE Act would have to use the newer version.

Coming Soon

We should see the following forms and guidance "soon," according to IRS officials.

Publications 1141 and 1223, which provide the general rules and specifications for substitute Forms W-2/W-3 and W-2c/W-3c, respectively, are expected to be revised and posted to the IRS website in early September.

Final versions of Forms 3921 and 3922 will be out by the end of September. Starting in tax year 2010, these forms will be used to report to IRS the exercise of incentive stock options (Form 3921) and the purchase of stock under an employee stock purchase plan (Form 3922). Draft versions of 3921 and 3922 are available on the IRS website.

In the "next couple of months," IRS said it will release

1.     guidance on W-2 reporting of employer-provided health care, including whether it will be reported in a new box or with a new code in box 12,

2.     details of the definition of medical expense for purposes of flexible spending arrangements (changed under health care reform legislation), and

3.     the final regulations on cafeteria plans (proposed regulations were issued in 2007).

Tax Liability for Unreported Tips

An employer may record any tax liability resulting from the new IRS audit program for unreported tip income on the last day or month of the quarter, said Idolina Volz, Senior Policy Analyst for the IRS's National Tip Compliance Program. That will give the employer the maximum amount of time to deposit the taxes.

After receiving a "Section 3121(q) Notice and Demand," an employer on the monthly deposit schedule will record the liability in the last month of the quarter on line 17 of Form 941, and an employer on the semiweekly deposit schedule will record it on the last day of the quarter on Schedule B, Volz explained. In addition, the amount of tax owing will be added to Form 941 on line 7c ("Current quarter's adjustments for tips and group-term life insurance").

The new audit program is based on Forms 4137, Social Security and Medicare Tax on Unreported Tip Income, submitted to the IRS by individual taxpayers. The IRS uses that information to assess the employer for its share of those taxes. For more information, see PAYROLL CURRENTLY, Issue No. 7, Vol. 18, page 3.

For more information on the HIRE Act, register for APA's Webinar On Demand, "How the HIRE Act Impacts Your Payroll Processing."

New Green Card -- Why the Change from 'Alien #' to 'USCIS #'?

By Scott Mezistrano, CPP

The "USCIS #" on the front of the newly designed Permanent Resident Card (commonly called the "Green Card") is currently the same thing as the "Alien #," which used to appear on the front of the card and now appears on the back of the card. This was explained by Yvette LaGonterie, Chief of Outreach for the Verification Division of U.S. Citizenship and Immigration Services, at a recent meeting of the Immigration subcommittee of APA's Government Affairs Task Force.

The name of the number was changed because USCIS wants one number to track all case information. In other words, the USCIS number will be used for Aliens, but individuals other than aliens might be assigned USCIS numbers for other purposes, she said.

Form I-9 requires the recording of the Alien number of individuals with green cards, and it will "eventually" be updated to request the USCIS number, according to LaGonterie.

The new cards started being issued on May 20, 2010, and are valid for 10 years. Those with older cards with no expiration date are encouraged to replace their cards to take advantage of the enhanced security features. The new card will have an expiration date, but the expiration date will apply only to the card, not to the individual's immigration status.

For more information, visit the USCIS website and click on "Green Card (Permanent Residence)." Also, check out the Immigration Subcommittee's meeting agendas and notes.

The Social Security Administration turns 75 this year. To celebrate the long history the SSA has had with employers, we're highlighting milestones that have impacted payroll professionals throughout the years.

The list has been excerpted from the SSA's website. The complete list, compiled by SSA historian Larry DeWitt, is available at http://www.socialsecurity.gov/history. The site also includes a wealth of information on the legislative history of the Social Security Act, the text of speeches from the Act's founders, and a host of additional information.

Pay FICA Tax on Severance, But File a Refund Claim

Read the August edition of Inside Washington to learn about:

* APA's tax counsel advises payroll professionals to continue to withhold, match, and deposit social security and Medicare taxes on nearly all forms of severance wages. However, she also recommends filing a claim for a refund of FICA taxes on severance payments meeting the definition in IRC §3402(o)(1). A refund claim may be made as easily as filing a Form 941-X for $1.00.  

* The SSA Wage Reporting Redesign subcommittee of the Government Affairs Task Force gave SSA its opinions on getting detailed feedback on the processing of wage files, being notified of duplicate submissions, and whether paper or electronic communications are preferable.

You can always learn more about the lobbying activities of APA's Washington office and the six subcommittees of the Government Affairs Task Force by visiting the Government Relations section of the APA website.