Flood Insurance, Fiscal Cliff, and IRS News for Employers

First the good news, since my post on January 2, 2013 in which I noted that the House of Representatives had not acted on a Senate bill intended to keep the national flood insurance program solvent, the new Congress has added almost $10 billion to that  program, so it appears to be safe for now. 

Since that post, I have come across a more detailed explanation of the effects of the action taken by Congress on January 1 of this year to avert the “fiscal cliff” that I thought would be of benefit to my readers.  It covers the effects of that action on both personal and business taxes.  The effects for individuals earning below $400,000 and married couples earning below $450,000 are mostly good with many of the tax credits and other benefits that have been in effect for the past few years being extended or even made “permanent” (i.e., there is no automatic sunset date, but Congress can always chose to change the law).  The major exception to the good news is that the payroll tax for Social Security and Medicare will go back to its previous level of 6.2% for employees.  Businesses can now deduct up to $500,000 of equipment purchases in the year they are made. (Click here to read the complete article.) 

In addition to a change in the payroll tax rate for employees, employers should be aware that the IRS has increased its 2013 auditing budget by more than 7 percent in anticipation of devoting more resources to the enforcement of new and previously existing employer compliance laws.  One new such law requires employers to report the cost of employer provided group health insurance coverage on their employees’ W-2s for 2013.  (Click here for IRS guidance on this new requirement).  One previously existing such law concerns the treatment of workers as employees or independent contractors.  This tax compliance area has become an important one for the IRS as it holds the promise of significant increases in revenue for the federal government if a worker was improperly classified as an independent contractor. (Click here for an article I have written on this subject that explains the risk to employers and how the IRS makes this determination).  For employers who are concerned about whether they have improperly classified their workers as independent contractors, the IRS has created a Voluntary Classification Settlement Program under which an employer can reclassify its workers as employees and avoid most of the adverse consequences that would occur if the IRS did it for them. (Click here for an explanation of this program).