How Legislative Changes Will Affect Your Clients’ Payroll and Business in 2011

With year-end fast approaching, ensure your clients are prepared for the payroll implications that start in 2011, which may affect both them and their employees. Read more.

December 13, 2010
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The year 2010 was filled with many new payroll regulations that required proper and timely implementation and also placed businesses at risk for costly noncompliance penalties. With year-end fast approaching, it is time to prepare for 2011. And, more changes lie ahead.

Ensure your clients are prepared for the payroll implications that start in 2011, which may affect both them and their employees. Some payroll changes include:

Form 8109. Effective January 1, 2011, the IRS will discontinue accepting federal tax deposits made with Form 8109. Federal taxes must be paid via Electronic Federal Tax Payment System (EFTPS) unless taxpayers owe $2,500 or less with their quarterly Form 941 or annual Form(s) 943 or 944.

Possible Federal Withholding Tax Increase. The federal income tax withholding rates that have been in effect since 2001 may be reverting to higher pre-2001 levels unless Congress acts to pass legislation that will extend the current rates into the future.

Elimination of Advanced Earned Income Credit (AEIC). This program, which allowed qualified employees to receive anticipated tax savings directly in each paycheck during the year, will end. Legislation signed into law August 10, 2010 repeals the Advanced Earned Income Tax Credit, effective January 2011. Qualified individuals will still be able to claim the credit on their Form 1040.

FSAs, HSAs and HRAs. Starting January 1, 2011, over-the counter medicines or drugs (other than insulin) are no longer eligible for reimbursement under a health reimbursement arrangement (HRA) or medical flexible spending account (FSA) unless prescribed by a medical practitioner.

Form W-2. Recently made optional for tax year 2011, a new provision requires employers to report the total value of an individual employee's health benefits on their W-2 form using a new Box 12 code of DD. As a result, employees will better understand the true benefit they receive through their employers and at the same time, it will raise awareness of the true cost to obtain health coverage. A new draft Form W-2 for 2011 is now available that, once final, employers can use to report wages and employee tax withholding.

1099 Reporting Requirements. Starting in 2012, any business that does more than $600 in business with any vendor will be required to submit a 1099 form.

Increased Penalties for Late or Missing Forms W-2. The Small Business Jobs Act of 2010 raised penalty amounts and thresholds related to failure to file and furnish correct employee pay statements. For instance, effective January 1, 2011, the first-tier penalty for filing an information return within 30 days past the due date has increased from $15 to $30, with the maximum penalty amount increasing from $75,000 to $250,000.

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To learn more about how Paychex can help your clients adjust to new rules impacting their payroll practices for next year, contact your local Paychex representative at 877-264-2615 or visit www.paychex.com.

Paychex is proud to be the preferred provider of payroll and retirement plan services for CPAs through the AICPA Trusted Business Adviser Program.

The material contained above is current only as of the date of publication. These materials are for informational purposes only. They are not legal advice and should not be relied on as such. You should contact your attorney to obtain advice with respect to any particular issue or problem.