Payroll Tips, Training, and News for Small Business

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Payroll Tips, Training, and News

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A Quick Update for Employers on the Earned Income Tax Credit

employees save on payroll taxesQ. Is the Earned Income Tax Credit going away?
A. No. The EITC, also known as the EIC, which was enacted by Congress in 1975 to help low-income workers, has not gone away. But the AEITC has.

Q. What was the AEITC?
A. The Advanced Earned Income Tax Credit program was designed to give qualified employees a tax credit that was distributed throughout the year in their paychecks. This option has gone away as of Dec. 31, 2010.  

Q. Why did the advance option go away?
A. The law changed. Workers didn’t take advantage of the advance option as much as the government had hoped. The Education Jobs and Medicaid Assistance Act of 2010 repealed the AEITC, and it became unavailable to workers in 2011.

Q. What will my employees do now?
A. Eligible employees can still get the earned income credit in a lump sum when they file their personal tax return. And if they received the tax credit in 2010, they need to report it on their tax return.

Q. What does it mean for me as an employer?
A. As an employer, you are are no longer part of the equation for your employees’ EITC. You no longer will calculate the tax credit in your employee payroll. Your payroll provider should have already updated their payroll software and forms to prepare for this change.You no longer need to give employees Form W-5 (Earned Income Credit Advance Payment Certificate); that form has been eliminated. However, you still must notify employees that they may be eligible to receive the earned income credit. (To find out if your employees are eligible, read Notice 1015: Have You Told Your Employees About the Earned Income Credit?)

You can satisfy the EITC notification requirement when you give employees their Form W-2 (required information is on the back of Copy B), or give them Form 797.

Payroll Tax Cut Gives Employees More Take-Home Pay in 2011

If you haven’t heard the news yet, employers will withhold less Social Security from their employee payroll taxes starting Jan. 1, 2011. The 2% payroll tax cut is designed to give employees more take-home pay for 2011. The Social Security “holiday” is one part of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Employers will calculate employee payroll taxes using the new Social Security rate of 4.2%, down from the current rate of 6.2%. The employer’s share of payroll taxes remains the same; they will contribute to the employees’ Social Security at a rate of 6.2% for 2011.

According to the Internal Revenue Service, employers should withhold at the new rate as soon as possible in 2011 and no later than Jan. 31. If you’re using payroll software or a payroll service, the rate change should be automatic — check with your payroll provider to be sure. Also, notify your employees of the rate adjustment and how it will affect their pay (they may be pleasantly surprised at the new amount of their paycheck.)

If you’re an employer still figuring payroll by hand, and you forget and continue to use the old rate, the IRS advises you to make an offsetting adjustment to your employees’ Social Security withholding no later than March 31, 2011 (the end of the first quarter.) For more details about this change in payroll tax withholding and the recently passed Act, read IRS notice 1036.

Changes Ahead for Employers Making Federal Payroll Tax Deposits

Employers, put away your #2 pencils, and say goodbye to the old yellow coupon books for payroll tax deposits.

Effective Jan. 1, 2011, most employers must use the Electronic Federal Tax Payment System (EFTPS) to make federal payroll deposit payments, either by the Internet or by phone. After you sign up, EFTPS will transfer payroll tax funds from your bank account directly to the Treasury. (And by the way, you can make all federal tax payments through this service.)

New Change May Affect Your Schedule
Employers, procrastinate no more! Take note: You can’t wait until the last minute anymore to make your payroll tax deposits. According to the EFTPS, you must schedule your payment one calendar day before the due date, and pay it online or by phone by 8 p.m. Eastern time to be considered timely. (So, if you’re a creature of habit known for dashing to the bank at 4:55 p.m. on the 15th of the month to make your payroll deposit — you’ll now need to dash to your phone or computer before 8 p.m. on the 14th instead.)

Super-Small Businesses May Qualify for Exception
If you’re a small business with a federal tax liability of less than $2,500 per quarter, you may have the option of mailing a check with your annual or federal returns (call the IRS at 1-800-830-5215, as they decide which businesses qualify, not me!)

How to Enroll in EFTPS
You most likely received an IRS mailing that detailed this coming change. If you haven’t opened this envelope, it’s time to find it and do it now. While the IRS has pre-enrolled employers in EFTPS and issued each employer a Personal Identification Number (PIN), you must activate your enrollment in the program. The brochure explains how, and your assigned PIN number is included in the mailing.

Call EFTPS at 1-800-555-3453 to activate your enrollment, and follow the prompts to enter your PIN number, 9-digit Employer Identification Number (EIN), banking info and phone number. Once you complete your enrollment, follow more prompts to get a temporary log-in password to make payroll tax payments at EFTPS online.

After you activate, you can make EFTPS deposits online, by phone, or by one additional method. Some banks may still be able to make federal deposits via EFTPS on your behalf, but you’ll still need to initiate the transaction a day early (sorry.) Contact your bank for more details and any costs for this service.

The Info You Need at a Glance
Yes, it is a lot to process. Here are some answers to questions you might be asking:

I activated my enrollment and I’m ready to make a payroll tax payment online or by phone — what’s next? Go to or call 1-800-555-3453.
How do I activate my enrollment in EFTPS? Call EFTPS at 1-800-555-3453.
Who do I call if I didn’t get my EFTPS enrollment info (or can’t find it)? Call EFTPS Customer Service at 1-800-555-4477 or visit
I think my business might be small enough to qualify for mailing payments with my payroll tax return. What should I do? Call the IRS at 1-800-830-5215 to see if your business qualifies.
I have questions about my bank and EFTPS. Who do I call? Call EFTPS Customer Service at 1-800-555-4477 or visit
I want to know more about why this is happening. Read the Federal Register report on EFTPS.

Note: Thinking about chancing it and mailing in a old tax deposit coupon with your liability payment? That may not be the best idea. According to the IRS, they may charge you a 10% penalty for each non-electronic deposit – even if your payment is on time.

I’ll try to keep you updated on important info regarding this change. Meanwhile, if you’ve had enough already and you’d like more info on payroll solutions (and let someone else worry about your payroll taxes for a change), check out our online payroll software and Full Service Payroll.

When’s the Best Time to Switch Your Payroll Provider?

switch your payroll system software provider

Updated on June 24, 2013
If you’ve been thinking about calling it quits with your current payroll provider, you may be wondering: When’s the best time to switch payroll providers and move on already? The answer is ANYTIME! Perhaps you thought the start of a new year would be the best time to make a fresh start with a new payroll service provider; so you wouldn’t need to enter data from any previous paychecks to get up-to-date? Actually, if your new accounting and payroll software provider is Patriot Software, we will do the data entry for you. For FREE. So you can switch to Patriot’s payroll system software at any point during the year.

Patriot’s Payroll System Software offers FREE payroll setup. Whether you are using another payroll provider, an accountant, or your spouse, Patriot Software can help you get set up. We can enter all necessary payroll information for the current year from your records. The system will identify the taxes you are responsible for and, if needed, it can help clean up issues with previous tax payments.

Of course, whenever you break up with someone, it’s vitally important to get all your stuff back. Whether you make a clean break at year-end or change your payroll provider in the middle of a tax year, make sure you get your payroll records from your old payroll provider (before they forget that they’re yours, like your favorite sweater you never got back).

Also, if you switch payroll processing companies midstream, clarify with them that you really are leaving (and you don’t want them to send you flowers or candy, or continue to file any forms with the government that your new payroll provider might duplicate, causing unnecessary confusion and more work on your end). It’s really best to wrap up this relationship with an email letter for documentation and to clarify all break-up details. Follow up with a phone call to confirm.

Ready to make the switch? Try Patriot Online Payroll free for 30 days with a no-obligation trial. Get started today!

DOL Cracks Down on Retirement Plan Contributions

piggy bankAs a follow up to my article Depositing 401(k) Contributions On Time, the Department Of Labor (DOL) is taking further steps to protect the assets of employer retirement and health plans.  The DOL has recently announced the roll-out of a new Retirement Security Initiatives program. This program serves not only to enforce employer rules for making timely deposits into employee benefit plans and investigating employer plan practices, but also to educate employees and notify them of their rights.

When it comes to protecting employee benefits, the DOL isn’t messing around.  In past years, the DOL has conducted numerous investigations into employers who did not deposit their employee contributions and instead used the money for another use unrelated to the retirement plan.  Recently, the DOL has filed 24 new civil suits on 11/16/10.  The DOL has also launched a new Contributory Plans Criminal Project to investigate individuals and service providers who have committed fraud against the plan.  The above fact sheet illustrates several recent criminal prosecutions which have resulted in prison sentences.

According to the DOL press release, “Workers are often the first line of defense in identifying problems with their benefit programs early,” said Phyllis C. Borzi, assistant secretary for EBSA. “Therefore, we want to equip them with information to help the department protect and preserve their right to plan benefits.”  The DOL has issued a publication geared toward employees called Ten Warning Signs That Your 401(k) Contributions Are Being Misused.

To stay off of the DOL naughty list, you must deposit your employees’ contributions into the plan as soon as administratively feasible, and do not use employee contributions for any other purpose other than for their benefit under the plan.

For more information see the DOL Retirement Security Initiatives Fact Sheet.

Health Reform Checklist for Open Enrollment

If your health plan renews on January 1, 2011, you’ll need to tell your employees about several important changes, including two special enrollment periods, as a result of the Patient Protection and Affordable Care Act (“PPACA”), otherwise known as the healthcare reform law.  These changes go into effect for all health plans renewing on or after September 23, 2010.  Assuming your open enrollment period is now or coming very soon, it makes sense to include this information with other open enrollment materials.

First, determine whether your plan is grandfathered or non-grandfathered.  See the article What Is A Grandfathered Plan? for more details.

Notices For Both Grandfathered and Non-Grandfathered Plans:

Notice of Grandfathered Status – Plan participants need to be made aware of whether or not the plan is grandfathered.  See the model notice language Word document issued by the HHS.

Special Enrollment Notice for Child Dependent Coverage Up to Age 26 – For plans that provide dependent coverage, newly eligible children will have a one-time 30-day opportunity to enroll in the coverage, if they:

  • had originally lost coverage due to reaching the prior age limit
  • are on COBRA due to losing coverage
  • or were never covered because they were above the age limit.

Note that some states already have laws in place with the same or higher age limits than this new federal law.  If you have a grandfathered plan, you don’t need to allow adult children who are eligible for coverage through their own job until 2014.  See the model notice language issued by the HHS.

Special Enrollment Notice for Those Who’ve Reached Their Lifetime Limit – The elimination of lifetime dollar limits is one of the PPACA changes.  Therefore, anyone on your plan who lost coverage due to meeting the lifetime dollar limit, and is otherwise still eligible for coverage now has a chance to re-enroll in the plan.  See the model notice language issued by the HHS.   Note:  Only send this special enrollment notice to those who had met the lifetime limit.

Other Plan Changes

Work with your insurance carrier or third party administrator to make sure your summary plan descriptions are updated with the following changes:

Pre-Existing Conditions for Children Under Age 19 – Previously, plans could limit or exclude coverage for pre-existing conditions if the individual did not have prior coverage when they enrolled in the plan.  The PPACA changed this rule so that coverage for pre-existing conditions of children under age 19 could be covered right away.  This provision will eventually be extended to anyone (adults or children) with pre-existing conditions effective 1/1/2014.

 Notice of Rescission of Coverage – The PPACA has limited the reasons that coverage can be revoked retroactively.  Plans are required to give a notice of 30 calendar days when this happens.

Additional Notice for Non-Grandfathered Plans:

Patient Protection Disclosures – For new plans or existing plans that have made changes and are no longer grandfathered, you must notify plan participants of their rights to choose a primary care provider for themselves and pediatricians for their children.  The law also allows obstetrical or gynecological care without prior authorization.  See the model notice language issued by the HHS.

Health Care Update: Change in Grandfathered Plan Definition

The Department of Health and Human Services (HHS) has recently made an amendment to the definition of a group health plan’s “grandfathered” status.  Grandfathered health plans are not required to meet some of the new requirements of the Patient Protection and Affordable Care Act (PPACA), otherwise known as the healthcare reform law.  See the previous article What Is A Grandfathered Plan? for more details.   A grandfathered plan will lose its exemption if certain changes are made to the plan, such as significantly changing deductibles, co-pays, and employee contributions.  Originally, a plan could lose its grandfathered status if a fully insured plan changed insurance carriers.  The HHS has since amended the definition to allow health plans to change insurance carriers without losing their grandfathered plan status, as long as the plan continues to maintain the same benefit levels.

So why was the change made?  In June 2010, the HHS had finalized the definition of a “grandfathered” health plan.  At the time, they had asked for the public to submit comments about this regulation, and it was because of these comments that the HHS has changed the definition.  Those who submitted comments raised some good points about situations where an employer has no choice but to change carriers, due to their existing carrier leaving the market, or the company being bought out.  There was also concern about insurance carriers taking advantage of rate negotiations at renewal time for employers who felt they had no choice but to stay with them to remain grandfathered.  This change also levels the playing field between large companies, who can afford to self-insure and were allowed to change third party administrators, and smaller employers, who are most likely fully insured and can now change insurance carriers.

See the official

Six States Will Increase Minimum Wage 1/1/11

Several states base their minimum wage rates on the Consumer Price Index (CPI) to adjust for inflation.  These states make the decision each year whether to adjust their minimum wage rate based on any change in the CPI.

Here are the six states increasing their state minimum wage hourly rates effective January 1, 2011:

State 2010 Rate New Rate 1/1/11
Arizona $7.25 $7.35
Montana $7.25 $7.35
Ohio $7.30 $7.40
Oregon $8.40 $8.50
Vermont $8.06 $8.15
Washington $8.55 $8.67


Colorado, Florida, Missouri, and Nevada are the other states that base their minimum wage on the CPI.  Colorado is still considering a proposal to increase their minimum wage to $7.36, and a decision should be made very soon.  Florida and Missouri have chosen not to increase for January 1, 2011, so both states will remain at $7.25.  Nevada makes its rate changes effective July 1st, and should make an announcement in the spring of 2011.

Be aware that some states have exceptions for small businesses whose annual sales fall below a certain amount.  Some states also have different rates for minor workers and tipped employees.  Check with your state’s Department of Labor for details.   

If you have employees working in these states, you will want to check now to see who in your workforce is being paid minimum wage, and be ready to enter pay increases in your payroll software as needed for January 1st.  You may also need to download and post new minimum wage posters, which can be found at your state’s Department of Labor website.   

IRS Tax Calendar for Small Businesses

describe the imageThe IRS has an online Tax Calendar for Small Businesses and Self-Employed Individuals.  The calendar helps business stay informed on various deadlines including filing tax forms, paying taxes, and other actions required by federal tax law.

Currently the 2015 version is the only one available online.  The user friendly, garden themed calendar allows you to navigate through each month, and also includes links to resources for small businesses.  A printable PDF version of the 2015 calendar is also available. To find options on accessing the IRS tax calendar options visit the IRS.
If you are looking for small business information and can’t find it in the calendar, visit the IRS Small Business and Self-Employed website.

November 15th Deadline for Medicare Part D Notices

Rx2If you sponsor a group health plan that includes prescription coverage, there are two Medicare Part D requirements imposed by the Centers for Medicare and Medicaid Services (CMS):

1. Written Notice to Medicare Eligible Individuals

Plan sponsors are required to send participants either a Notice of Creditable Coverage or a Notice of Non-Creditable Coverage, whichever is applicable, by November 15th each year.  If the company’s prescription coverage is creditable, it means the company plan is expected to pay on average as much as the standard Medicare Part D prescription coverage.  Your health insurance carrier/TPA can assist you in determining whether your plan’s prescription coverage is creditable, and should be able to provide you with a sample notice, or even send the notice on your behalf.  There are also model notices on the CMS website that you can use.

The purpose of sending the notice is to help Medicare eligible individuals decide if they should enroll in a Medicare Part D prescription plan during the Medicare open enrollment period of 11/15 – 12/31.  The notice contains a warning that if they lose the company’s prescription coverage and go 63 days or longer without coverage, they will pay a penalty if they want to enroll in a Medicare prescription plan later.  CMS requires that the notice be sent to Medicare eligible participants and their dependents in your plan, whether they are active employees, COBRA eligible, disabled, or retirees.  This notice also needs to be given to any Medicare eligible employee when they first join the company plan.  Some carriers recommend that the notice be sent to all covered participants, regardless of Medicare eligibility, to ensure the requirement is met.

2. Reporting The Status Of Your Plan to CMS

Group health plans must also notify the CMA about their creditable coverage status no later than the 60th day after the start of each plan year.  The Disclosure to CMS Form is an online form.

See more information about the Medicare Part D creditable coverage requirements on the CMS website.