This document provides a summary of information and training provided by Smith Elliott Kearns & Company, LLC as part of a "Year-End and Payroll Tax Update." It notes that the information is intended for reference only and not as a substitute for personalized professional advice. While Smith Elliott Kearns & Company has made efforts to ensure the accuracy of the information, no warranties are provided. Participants are responsible for their use of the information.

1. Sandra Bruno, CPA and Brooke Murphy, EA
November 2013
Information and training provided by Smith Elliott Kearns & Company, LLC as part of “Year-End and Payroll Tax Update” is intended for reference only. As the information is designed solely to provide
guidance to the participants, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations.
Although Smith Elliott Kearns & Company, LLC has made every reasonable effort to ensure that the information provided is accurate, Smith Elliott Kearns & Company, LLC and its Members, managers
and staff, make no warranties, expressed or implied, on the information provided. The participant accepts the information as is and assumes all responsibility for the use of such information.

2. 







2014 Cost of living adjustments
Maryland & Pennsylvania tax updates
Affordable Health Care Act (Business & Individual
provisions)
Sec 125 Plans
Independent Contractor vs. Employee
1099 Reporting
Federal Ruling on Same-sex Marriage
Online Banking Security

3. 
Social Security Wage Base and Tax
 $117,000 - 6.2%

Medicare rate 1.45%

New Additional 0.9% Medicare Tax

No employer portion

Wage excess of $200,000 (Single) and $250,000 (MFJ)

4. 401(k), 403(b) and 457 Plans
$ 17,500
Catch up - $ 5,500
Simple Plans
$ 12,000
Catch up - $ 2,500
IRA
 $ 5,500
 Catch up $ 1,000
Mileage Rate
Jan – Dec 2013: $ 0.565, Charity $0.14 (2014 rate not released)

5. 
Effective January 1, 2012

Changes to income brackets, income tax rates and
personal exemption limits

No tax rate change for single filers less than
$100,000 and married joint less than $150,000

6. 
Example: Spouses filing jointly and head of
household brackets and rates:
 For Maryland taxable income of $3,001 through
$150,000, the rate is 4.75%;
 For Maryland taxable income of $150,001 through
$175,000, the rate is 5%;
 For Maryland taxable income of $175,001 through
$225,000, the rate is 5.25%;
 For Maryland taxable income of $225,001 through
$300,000, the rate is 5.5%;
 For Maryland taxable income in excess of $300,000, the rate
is 5.75%

7. 
Taxes for counties range from 1.25% to
3.2%
 Washington 2.8%
 Frederick 2.96%
 Baltimore City, Howard & Montgomery 3.2%

8. 
Highlights of Act 32
 January 1, 2012
 Objective – to remedy lost revenue by streamlining
collection and standardizing forms
 560 tax collectors reduced to no more than 69
 ACT 32 does not apply to:
 Businesses/employers located only in Philadelphia
 Businesses/employers not located in PA, even if employing PA
residents
 Self-employed individuals (unless they have employees)
 Fines and Penalties

9. 
ACT 32 Requirements
 Register with the tax collector in your business’s jurisdiction
 Have EVERY employee fill out a Certificate of Residency
Form
 Withhold the higher rate of:
 Where the employee resides or
 The nonresident tax rate for the municipality where the employee works
 File quarterly and annual forms
 Businesses in multiple areas can elect combined filing with one tax collector
but must file and remit electronically on a monthly basis

10. 
Electronic filing is here! Are you ready?
 January 2013-Unemployment Compensation
Management System (UCMS) allows
employers and third party administrators to
access information and file quarterly reports
online

11. 
Effective with the first quarter 2014
filing, employers will be required to
electronically file quarterly UC tax and
wage reports
 Department of Labor & Industry will not be
mailing forms to employers
 www.paucemployers.state.pa.us

12. Year
Taxable Wage Base for
Employer Contributions (per
employee per year)
Maximum State
Adjustment Factor
2013
$8,500
1%
2014
$8,750
1%
2015
$9,000
1%
2016
$9,500
1%
2017
$9,750
0.85%
2018 and
thereafter
$10,000
0.75%

13. 
Changes for business:
 FSA limits
 W-2 reporting
 Summary of benefits
 Medical Loss Ratio Rebate
 Small Business Health Care Credit
 Minimum essential coverage

14. 
Cost of employer-sponsored health insurance
must be reported on W-2 in Box 12 – Code DD

Reporting is for informational purposes only

15. 
Reporting Requirements
 Reporting began for 2012 W-2 (filed in 2013)

Additional Relief for Small Employers
 Less than 250 W-2s in prior year are not required
to report until further notice

16. 
What to Report on Form W-2
 Aggregate reportable cost of the coverage
 Employee and employer portion
 IRS website:
 http://www.irs.gov/uac/Form-W-2-Reporting-of-
Employer-Sponsored-Health-Coverage

17. 
Important W-2 Reporting Items
 Health Savings Accounts
 S-Corp Shareholder Health Insurance
 Personal Use of Auto
 Retirement Plan Withholdings

18. 
Miscellaneous Information
 Electronic Filing of Employment Returns
 941 and 940
 2013 Forms W-2 to be filed electronically
 Maryland - 25 or more
 Pennsylvania - 250 or more must file electronically
 Federal – 250 or more

19. W-2 Reporting Due Dates
Employees
January 31, 2014
Paper Forms W-2 to SSA
February 28, 2014
Electronic Forms W-2 to SSA
March 31, 2014

20.  Uniform summary of benefits and coverage
explanations in plain language
 Must be provided at plan renewal on or after
9/23/12
 Revised summary of changes must be given 60
days prior to effective date
 Penalty of up to $1,000 per failure to provide

21.  Insurers required to spend so much of
premiums on claims-excess refunded to
employer
 Employer must distribute rebates to
participants in some way…
 Distribute to enrollees/improve benefits/reduce
future employee contributions
 Allocation amongst participants must be fair
and reasonable
 Must be used within 3 months of receiving

22. 



2010-2013 credit is 35% of the premium cost for
small business (25% for nonprofits)
Employers must cover at least 50% of the cost of
single coverage
Must have fewer than 25 full-time equivalent
employees
Average wages less than $50,000

23. 
2014 & 2015-credit is available if employer
purchases health insurance coverage for their
employees through a health exchange
 Credit is worth up to 50% of premium cost (35%
nonprofits)

24.  2015- employers with 50 or more employees
who DO NOT offer health coverage
 Must offer insurance to full-time employees or
pay a penalty
 Fine is $2,000 per employee, but first 30
employees are not counted….so with 65
employees penalty is only paid on 35 of them

25.  2015- employer with 50 or more employees
who DOES offer health coverage…but has at
least one full time employee receiving a tax
credit in the exchange will pay the lesser of….
 $3,000 for each employee receiving a credit or
$2,000 for each full time employee

26.  How can an employee receive a tax credit in
the exchange?
 Family income up to 400% of federal poverty
level is eligible for credit if:
 Value of employer coverage is less than a minimum
standard (does not cover 60% of costs)
 Employer requires employee to contribute more than
9.5% of employee’s family toward coverage

27. 
Changes for individuals:
 Additional Medicare withholding
 Medicare Surtax or Net Investment Income
 Medical expense deduction
 Failure to maintain health insurance
 Premium Assistance Credit

28. 
Effective January 1, 2013
 Withholding requirement commences in the pay period
where paid wages exceed $200,000 regardless of filing status
 0.9% Withholding
 No employer match
 Form 1040-Earnings over $200,000 for single, head of
household, married filing separately, & Qualified Widow(er)
with Dependent Child
 Form 1040-Earnings over $250,000 for married filing joint

29.  New 3.8% surtax on individual investment
income
 Calculated on the lesser of:
Net investment income OR the
 Excess of taxpayers’ modified AGI over $200,000
($250,000 for MFJ)


30. 
What is included as net investment income?
 Interest
 Dividends
 Annuities
 Royalties
 Rent
 Capital Gains
 Passive income from business (limited
participation)

31. 
Barack & Michelle, MFJ
 Salaries $280,000 + net interest income
$20,000 = AGI $300,000
 Taxes on lesser of
1. Net investment = $20,000
OR
2. Excess of AGI over $250,000 = $50,000
Result:
$760= 3.8% surtax on $20,000

32. 
2013, medical expenses allowable if greater
than 10% of AGI

Exception- Taxpayer or Spouse is or turns 65
during 2013-2016, 10% threshold is not
effective until 2017

33. 
2014 & 2015 phase in period-penalty on
individuals who fail to maintain “minimum
essential coverage”

Penalty: 2014 = greater of 1% of household
income OR $95 per uninsured
2015 = greater of 2% of household
income OR $325 per uninsured

34. 


Penalty included on 1040
IRS may not impose interest on late payment
Not subject to criminal prosecution or
assessment
 IRS may not file lien or levy property
 May reduce refund owed to taxpayer

Supreme Court ruled this is a tax

35. 
2014- refundable credit to cover cost for
health insurance purchased through a
state health exchange
 Credit based on income
 Low income individuals

36. 
Types of Plans
 Premium Only Plans (POP)
 Dependent Care Assistance Program (DCAP)
 Flexible Spending Accounts (FSA)
 Health Reimbursement Accounts (HRA)

Benefits to both employee & employer

37. 
Dependent care limit: $5,000

No limitation related to health insurance
premiums portion.

FSA Deferral limit: $2,500
 May be adjusted in future years for cost of living

New for 2013: $500 Carryover Option
 Allowed grace period or carryover, but not both
 No effect on $2,500 limit
 Plan must be amended to adopt this change

38. 
Employee or Independent Contractor?
 Employee – Job to be completed under the control of
employer, collects paycheck, employer pays payroll
taxes related to individual
 Independent contractor – self employed or non
incorporated business

Common-Law Rules
 Behavioral control
 Financial control
 Type of relationship

39. 
Federal Reporting of 1099
 Filing requirements (Both IRS & State)
 $600 or more paid for rents or services
 $10 or more paid in interest, dividends, or royalties
 Due dates
 Due to the contractor by January 31
 Due to the IRS & State by February 28, unless filing electronically then
due by March 31
 Penalties
 Ranges from $30 - $100 per return with a max of $250,000 - $1,500,000
 Small business max ranges from $75,000 - $500,000
 Intentional disregard of filing penalty is at least $250 per return, with
no max

40. 
PA 1099 Reporting
 Required for PA-based work & PA-source oil/gas
lease payments
 Federal form may be used, unless the entity is
required to file electronically using e-TIDES
 Due dates are the same for PA as for Federal forms
 Penalties
 $50 penalty for each occurrence of failure to file, or
providing fraudulent or false information

41. 
IRS Notices
 Contact vendors to verify correct information
 Full legal name
 Correct EIN or SSN
 If incorrect information may be required to
withhold federal tax (28%) from future payments.
 May want to send Form W-9 to each vendor for
them to complete
 Form I-9 & W-9 have been updated

42. 
Consolidated backup of QuickBooks Files
 Subpoena of QuickBooks files or IRS audits
 Contact an SEK employee for additional help with
consolidating your QuickBooks files

Sunset Rules/Support
 QuickBooks should be upgraded every 3 years, since that is
the amount of time Intuit will support each version
 After the 3 years, key features may not be available or may not
work properly including:




Payroll
Online Banking
Merchant Service
Credit Card Download

43. 
For federal purposes, same-sex couples, legally married in a
jurisdiction that recognizes the marriage, will be considered
married.
 Will be treated as married for federal income tax, gift, & estate tax purposes
 Must file either a married filing joint or married filing separate return for
2013
 Can possibly amend their 2010, 2011, & 2012 federal income tax returns to
file a married return
 If they were married during the tax year being amended

Employment related items
 Employees who purchased same-sex spouse health insurance from their
employer on an after-tax basis may treat the premiums paid as pre-tax &
exclude them from income
 This would be pretax for:
 Federal Income
 Social Security Tax
 Medicare Tax
 To claim a refund, the payroll tax returns would need to be amended

The Treasury & IRS intend to streamline procedures for employers
who wish to claim a refund on previously taxed benefits & provide
further details for individuals

44. 
Internet risks & fraud trends
 From the criminals‟ point of view, Internet fraud is a
high-growth, profitable industry
 Organized crime has moved into the business of
Internet fraud, driving a significant increase in
incidents & sophistication of incidents
 Personal computers rather than bank systems are
typically the target of fraudsters, since they are seen as
„the weakest link‟
 Fraudsters use targeted social engineering techniques in
conjunction with crimeware & malware infections

45. 
Corporate Account Takeover
 A type of identity theft in which a criminal steals a
business‟s valid online banking credentials to initiate
fraudulent banking transactions
 Fraudsters use malware software on the User‟s PC to
record keystrokes & gather login information, including
usernames & passwords & token values
 Using stolen credentials, fraudsters perform
unauthorized transactions

46. 
Examples of fraud scenarios
 “Phishing” emails
 Many payment fraud schemes start with “phishing”
emails, which correctly names the recipient & contains
either an infected file or a link to an infectious website
 The email recipient is generally a person within an
organization who can initiate funds transfers or payments
on behalf of the organization
 Once the email recipient opens the attachment, or clicks
the link to open the website, malware is installed on the
recipient‟s computer

47. 
Examples of fraud scenarios
 Cross-channel fraud
 User experiences abnormal system behavior & then
receives a call from an individual claiming to be from the
Bank‟s customer service unit. The caller says they noticed
the User was experiencing issues & is calling to help.
 This is an attempt to obtain log in credentials from the User
 Company receives an email request from a
vendor/supplier to change payment instructions. Often
times, the sender stresses a sense of urgency & a need to
communicate via email instead of via phone
 This is an attempt to get the Company to send funds to a fraudster‟s
account

48. 
Examples of fraud scenarios
 Infected browser
 Individual navigates to a website that appears to be legitimate but is, in
fact, fictitious
 Simply visiting the site infects the individual‟s PC
 Once malware has been installed on a PC, the fraudster can take over the
browser to present a fake webpage to gather login credentials
 Individuals should be familiar with the standard look & functionality of
their bank‟s webpage
 Potential signs of fraudulent activities include:
Lack of full branding
Spelling and/or grammatical errors
Non-standard log-in screen
 System messages targeted to get User to wait so fraud can occur or to have
another User log in so secondary set of credentials can be captured
 Becoming increasingly difficult to differentiate between a legitimate
webpage & a fake webpage as fraudsters improve their tactics

49. 
Indications your PC may be infected with malware
 PC performance problems – slowness or dramatic loss of
speed, computer locks up so that the User is unable to
perform any functions
 Unexplained system behavior – unexpected rebooting or
restarting of computer, inability to shut down or restart,
new or unexpected toolbars and/or icons, changes in the
way things appear
 Interruptions from pop ups or spam – unusual pop up
messages, an unexpected request for a one-time
password

50. 
Best Practices to help reduce fraud risk
 Computer network security
 Carry out all online banking activities from a stand-alone & dedicated
computer
 Regularly update the anti-virus & anti-spyware programs on each
computer used for internet banking
 Training your staff
 Don‟t respond to or open attachments or click on links in unsolicited
emails
 Be very suspicious of emails claiming to be from a financial
institution or taxing authority requesting account information,
account verification or banking access credentials
 Verify that you are using a secure session (https, not http)
 Always end your Online Banking Internet sessions by “logging off”
 Verify email instructions through a different channel & do not rely
upon contact information provided in the email

51. 
Best Practices to help reduce fraud risk
 System Access
 Restrict User permissions
 Create unique IDs for each online banking user
 Delegate the minimum requirements to a User to get the job done
 Review user access & permissions on a regular basis
 Implement Dual Administration of Users
 Segregate permission to create/modify users & user permissions from
the permission to approve such actions
 Payment Processing
 Segregate ACH & wire payment functions, by having one
individual initiate the transaction & a different individual
approve the transaction
 Establish transaction limits for Users

52. 
Recommendations in the event you become a victim of fraud
 Immediately cease all activity from computer systems that may be compromised
 Log-off & shut down PC
 Unplug the Ethernet or cable modem connections to isolate system from remote
access
 Immediately contact your bank to request that the following actions, & any
others you consider appropriate, be taken to help contain the incident:




Change online banking passwords
Confirm recent accounts transactions
Close existing account(s) & open new account(s) as appropriate
Ensure that no one has requested an address change, title change, PIN change or
ordered new cards, checks or other account documents to be sent to another
address
 Immediately contact your organization‟s security officer or security advisor to
ensure you are following your own appropriate security procedures and
guidelines to help contain the situation

53. 
Examples of possible security procedures that may
be offered by banks:
 User ID & Password
 Token device
 Anti-keystroke logging technology
 Dual authorization of payment profiles/templates
 Dual authorization of payments
 Control totals
 Verification of payments via different means of
communication
 Email alerts
 Payment initiation/approval limits

54. 
Review payroll setups for employees &
employer, including Medicare, Social
Security, FUTA, and SUTA changes

Be alert for updates on the Health Care Provisions

Make any necessary changes to your Cost of Living
Adjustments or Sec.125 Plans

Make sure you have correct information for any
1099s to be filed

Be alert while conducting any online banking or
other financial transactions