Thursday, March 12, 2009

Big costs to your firm hidden in the stimulus in two expensive acronyms: SBP v. ABP

More valuable information from AIPB (American Institute of Professional Bookkeepers).

It was unintended, but in helping unemployeds, the stimulus ended up adding new payroll costs. Here's one buried cost:

Currently, most states use a standard base period (SBP) to determine eligibility for unemployment benefits. Under the new law, one-third of the federal incentive funding (available through federal fiscal year-end 2011) for state benefits is available to states that use - or agree to use - the alternate base period (ABP). The remaining two-thirds of the incentive goest to states that have or will have at least 2 of 4 other provisions.

The current system: SBP. The SBP is the first 4 of the last 5 completed calendar quarters (in Massachusetts, the last 4 completed calendar quarters). Every state requires that an employee earn a certain amount in wages over a certain period, generally, 1 year (4 calendar quarters), to qualify for unemployment payments.

Case Example: Your former employee Joe files a claim for unemployment benefits in February 2009 (1st q. 2009). Your state's SBP runs from 4th q. of 2007 through the 3rd q. of 2008. Thus, 4th q. 2008 (the "lag" quarter) and 1st q. 2009 are not used in the eligibility calculation.

The new system: ABP. There are incentives for states to use ABP, under which the last 4 completed calendar quarters determine eligibility for benefits. The base period for an employee terminating in February 2009 is the 4 quarters of 2008. But when the last 4 completed calendar quarters determine eligibility, claimants' most recent paid work history is included, substantially increasing the likelihood of qualifying for benefits and receiving higher payment amounts.

Bottom line: If - more likely, when - your state adopts the ABP, your company's SUI account will be charged for more unemployment payments and your SUI rate could rise in response to more charges to your account.

The administrative burden: When your state adopts the ABP, it will need your last calendar quarter wage reports much sooner to determine claimants' eligibility. For example, say that you now file 4th q. unemployment wage reports by Jan. 31. If your state adopts the ABP, it will need this data immediately. Thus, instead of using your filings to evaluate claimant eligibility, it may start asking you for data on former employees before you file. This can be time consuming.

Alternative: States adopting the ABP can accelerate due dates for wage reports and/or mandate electronic reporting - e.g., a state might require quarterly wage detail by the 15th of the month following the quarter - or set lower thresholds, such as only 25 employees - before you must report electronically. Faster wage report filing puts time pressure on employers, particularly multi-state employers.

Be certain to discuss your obligations with either your accountant or payroll company.

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posted by The Office Grapevine at 12:09 AM 0 comments

Wednesday, March 11, 2009

Hidden stimulus traps — how federal COBRA subsidies can choke company cash flow

This is something I received recently from AIPB (American Institute of Professional Bookkeepers).

The new law includes a 65% federally funded COBRA continuation subsidy that lasts up to 9 months for workers (and their families) involuntarily terminated from Sept. 1, 2008 - Dec. 31, 2009. The subsidy terminates when the former employee is offered employer-sponsored health care coverage by a new employer, or becomes eligible for Medicare; or has COBRA coverage that has expired.

Notify within 60 days of Feb. 17 former employees involuntarily separated between Sept. 1, 2008 - Feb. 17, 2009. Notify those who elected COBRA that they are entitled to a lower premium starting in the first coverage period after Feb. 17. Notify those who rejected COBRA that they have have 60 days to elect COBRA and receive the subsidy. You can let former employees choose a less expensive plan. No subsidy is available to former employees whos income is over $125,000 a year or a family income over $250,000 a year, but employers are not required to monitor for the income phaseout.

The impact on small businesses: Because the new law allows employers to collect from qualified COBRA participants only 35% of the premium cost (instead of the current 102%), employers must recover the federally funded 65% by reducing their federal employment tax deposit. Result: Monthly and quarterly depositors must advance 65% of the premium cost for each COBRA enrollee for as long as it takes to offset in their tax deposits the amount due them. Problem: When the subsidies add up to more than your company's tax deposit, your company must request reimbursement from the U.S. Treasury. At this point, there is no way to know how long you will have to wait for reimbursement.

Administrative burdens: Subsidized health care premiums may be due as soon as Mar. 1, leaving you little time to compute the lower premiums and issue the required notices.

Contact your health insurer (and payroll service, if applicable) to assure the fastest possible COBRA subsidy refund. Any delay may cause you bigger cash flow problems.

The first period for reporting COBRA subsidy refund requests is 1st q. 2009, with your 941. For timely filing, make sure you are familiar with changes in Form 941 and related guidance.

Be ready for the IRS to require reports of annual COBRA participant subsides. Because of the subsidy's income phaseout, the IRS may also ask you to file an annual 1099 or W-2, Box 12 data to report total premium subsidies for COBRA participants receiving the subsidies.

Be sure to review with your accountant how this and other tax changes impact your business.

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posted by The Office Grapevine at 11:43 PM 0 comments

Tuesday, January 13, 2009

Some Breaking News from AIPB

I just received this great information from the American Institute of Professional Bookkeepers. Be sure to speak with your financial advisor to verify if this does in fact impact your situation.

An unpleasant surprise may await
S corp and partnership owners

Under recent IRS guidelines, owners may not receive the full benefit of the 2008 Sec. 179 write-off of $250,000. The IRS says that the deduction applies separately to the entity v. individual owners. (Here, "owner" refers to both the S corp shareholder and the partner in a partnership.)

The amount of Sec. 179 pass-through an owner can deduct will depend on the maximum Sec. 179 deduction allowed in the owner's tax year—not the S corp's or partnership's tax year. This is potentially bad news for owners who have a calendar tax year who receive a pass-through Sec. 179 deduction from an S corp or partnership with a fiscal year. Here's what to tell company owners:

Entity treatment. An S corp or partnership with a tax year beginning in 2007 and ending in 2008 has a Sec. 179 ceiling of $125,000 for property placed in service in 2007. An S corp or partnership with a tax year beginning in 2008 and ending in 2009 has a Sec. 179 ceiling of $250,000 for property placed in service in 2008.

Owner Treatment. A calendar-year shareholder or partner has a Sec. 179 deduction of up to $250,000 when:
  • property is placed in service by the entity during 2008.
  • the pass-through portion of any Sec. 179 deduction(s) to the owner occurs in 2008 and that owner has a taxable year ending in 2008.

Here is the potentially bad news: Say that the entity's tax year begins in 2008 and ends in 2009, giving it a maximum Sec. 179 deduction of $250,000—but the pass-through to the owner occurs in 2009 and the owner has a calendar tax year in 2009. The maximum Sec. 179 deduction for that owner will be limited to the 2009 maximum Sec. 179 deduction of $125,000 (plus any inflation adjustment).

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posted by The Office Grapevine at 7:58 AM 0 comments

Wednesday, December 03, 2008

December 2008 Accounting Tip - Payroll Accruals

I just got this from one of my many newsletters and wanted to pass it along to those of you who do your own bookkeeping. It comes to us from AIPB (American Institute of Professional Bookkeepers).

The last day of 2008 is Wednesday, December 31. The first day of 2009 is Thursday, January 1. If your company is on the accrual basis, GAAP requires accruing an expense in the year it is incurred.

Thus if you pay employees for the last week in December on Friday, January 2, you must book Monday-Wednesday (Dec 29-31) as 2008 wage or salary expense and Thursday-Friday (Jan 1-2) as 2009 wage or salary expense.

Example:
Your company's workweek is Monday-Friday, your payroll is $25,000, and you distribute your payroll on Fridays. How do you book your payroll for the last week of December 2008?

On Wednesday, Dec. 31, 2008, record the journal entry to accrue wage expense for Monday-Wednesday (Dec 29-31, 2008). This expense will be 3/5, or 60%, of that workweek.

To compute this amount:
$25,000 weekly payroll x 60% = $15,000 accrued payroll expense for 2008.

For the journal entry, contact me and I'll send you the journal entry.

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posted by The Office Grapevine at 7:27 AM 0 comments