New Overtime Rues & Regular Rate Regulations Part 1

Late in 2019, the U.S. Department of Labor issued two final rules updating and revising the regulations under the Fair Labor Standards Act (FLSA) governing overtime and regular rate regulations.  These rules became effective in January 2020 and will be covered below and in the next issued Facts Alert.

The first final rule was effective January 1, 2020.  This rule updated both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees.”  This is the first adjustment to the thresholds since 2004, and it is estimated that this will result in 1.3 million employees currently classified as exempt being classified as nonexempt and thus will be entitled to overtime pay.  Under the new rule, salary and compensation levels needed for workers to be exempt are as follows:

·       Raised the “standard salary level” from $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);

·  Raised the total annual compensation level for “highly compensated employees (HCEs)” from $100,000 to $107,432 per year;

·      Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level; and

·     Revised the special salary levels for workers in U.S. territories and in the motion picture industry.

In addition to being paid at or above the standard salary level, employees must also qualify for one of the following exemptions to be exempt from overtime:

·       Executive Exemption

·       Administrative Exemption

·       Professional Exemption

·       Computer Employee Exemption

Definitions of the exemptions can be found on the U.S. Department of Labor website.

As these rules are now in effect, be sure you evaluate them to determine if they affect you or your business.  Call us at (219) 769-3616 with your questions, or email them to dvanprooyen@swartz-retson.com.

Information taken from www.dol.gov.

New IRS Form W-4 for Withholding Is Available

The IRS has released the 2020 version of Form W-4, which looks significantly different than the previous version.  Until 2020, Form W-4 hadn’t seen a major redesign since 1987.  The form was redesigned to reflect changes in the federal tax code from the Tax Cuts and Jobs Act which took effect in 2018.  The update, according to the IRS, “reduces the form’s complexity and increases the transparency and accuracy of the withholding system.” 

The most significant difference is the lack of allowances, which were used to calculate withholdings.  Instead, the new form consists of five steps.  Steps 1 and 5 must be completed, while steps 2, 3, and 4 are optional.  The steps are summarized as follows:

·       Step 1:  Personal information

·       Step 2:  To be completed if you have multiple jobs or a spouse that works

·       Step 3:  To be completed to claim tax credits for dependents

·       Step 4:  Other adjustments

o   Amount of additional income such as interest, dividends, retirement

o   Itemized deduction amount

o   Extra withholding

·       Step 5:  Sign the form

The new Form W-4 is only required to be completed by those hired in 2020.  It’s a good idea, however, to review your withholding annually to determine if adjustments should be made to reflect your current situation.  The IRS has a Tax Withholding Estimator (www.irs.gov/W4App) to assist you with that determination.  In order to use the estimator most effectively, it’s helpful to have your most recent pay stub and tax return handy.

Call us at (219) 769-3616 with your questions, or email them to dvanprooyen@swartz-retson.com.

Upcoming Deadlines in 2020

Don’t subject yourself to tax penalties for missing important filing deadlines in 2020. Get out your 2020 calendar and mark any of the following tax deadlines that apply to you or your business.

—  January 31 – Employers must furnish 2019 W-2 statements to employees. Payers must furnish 1099 information statements to payees.

—  January 31 – Employers must send W-2 copies to the Social Security Administration.

—  January 31 – Payers must file Forms 1096 and 1099-MISC with reported non-employee compensation in Box 7 with the IRS. 

—  January 31 – Employers must generally file 2019 federal unemployment tax returns and pay any tax due.

—  January 31 – Form WH-3 (paper and electronic) is due to the Indiana Department of Revenue.

—  February 28 – Payers must file Forms 1095-B and 1095-C with the IRS. (April 1 is the deadline if filing electronically.)

—  February 28 – Payers must file Forms 1096 and 1099-MISC (other than with non-employee compensation in Box 7) with the IRS.  (March 31 is the deadline if filing electronically.)

—  March 4 – Employers must furnish 2019 Forms 1095-C to full time employees.

—  March 4 – Insurers must furnish 2019 Forms 1095-B to the person identified as the “responsible individual” on the form.

—  March 16 - Calendar-year S corporation income tax returns are due.

—  March 16 – Calendar-year partnership income tax returns are due.

Call us at (219) 769-3616 with your questions, or email them to dvanprooyen@swartz-retson.com.

Independent Contractors

As the end of the year approaches, now is a great time to review your expenses for the past year to determine if your business will be required to file Form 1099-MISC to report nonemployee compensation payments to independent contractors.  However, employers often struggle with determining who is an independent contractor.  The best way to avoid misclassifying workers is to understand the defining characteristics of independent contractors. 

An independent contractor:  

·       Pays self-employment taxes (Social Security and Medicare)  

·       Is trained in their profession

·       Can work with many employers at one time (different clients)  

·       Controls when, how and where the work is done. 

·       Negotiates rates on a per-job basis  

·       Uses own tools and equipment to perform the work  

·       Does not receive employee benefits

·       Works on a profit/loss basis

·       Does not receive overtime pay

In general, if you paid a non-employee $600 or more during the past calendar year, you must report the amount paid in box 7 of Form 1099-MISC.  The individual will be required to report this income on their personal tax return.  You must also report payments of $600 or more for both attorney fees, as well as payments for services to a Partnership/LLC.  Payments to a corporation are generally not required to be reported.

Questions about who should be classified as an independent contractor? Call us at (219) 769-3616 or email them to tnewman@swartz-retson.com.

Year End Tax Saving Ideas

There's still time to reduce your potential tax obligation and save money this year (and next). Here are some ideas to consider:

• Estimate your 2019 and 2020 taxable income. With these estimates you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income this year AND next year.
• Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s and various IRAs (traditional, SEP and SIMPLE).
• Take your required minimum distributions (RMDs). If you are 70½ or older, you need to take RMDs from your retirement accounts by Dec. 31. Don't forget to make all RMDs because the fines are hefty if you don't — 50 percent of the amount you should have withdrawn.
• Manage your gains and losses. Rebalance your investment portfolio and take any final investment gains and losses. When you have more losses than gains, up to $3,000 can be used to reduce your ordinary income. With careful planning, you can take advantage of this loss amount each year.
• Finalize your gift-giving strategy. Each year you may gift up to $15,000 without tax reporting consequences to as many individuals as you choose. Consider any gift-giving you wish to make up to the annual limit. This could include gifts of cash or property, and investments.  The limit is per taxpayer, so a married couple could provide up to $30,000 in gifts to one individual with no tax consequences. 
• Donate to charities. Consider making end-of-year donations to eligible charities. Donations of property in good or better condition and your charitable mileage are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction. Have a plan by knowing your total deductions for the year to help you decide how much and when to donate. Pulling some donations planned for 2020 into 2019 may be a good strategy if you expect to itemize on your 2019 income tax return.
• Organize records now. Start collecting and organizing your tax records to avoid the scramble come tax season.
• Develop your own list. Use these ideas as a jumping off point to create your own list of annual review items. It might also include reviewing college savings accounts, beneficiaries, insurance needs, wills, trusts, and going through an aging parent's financial accounts.

Questions about the most effective money-saving moves for your situation? Call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.

Qualified Charitable Distributions

According to articles published earlier this year, charitable giving by individuals decreased in 2018.  While several factors can contribute to this, certainly one aspect that has always made charitable giving appealing is receiving a tax deduction.  However, because of the recent Tax Cuts and Jobs Act (TCJA), this is not as great of a factor as it once was.  Part of the TCJA changes was the doubling of the standard deduction.  When an individual files their personal return, they can deduct the greater of the standard deduction (a flat dollar amount) or the total of their itemized deductions, which includes charitable contributions.  For 2018, the standard deduction for a married filing joint return was $24,000 ($12,000 for single).  For many taxpayers, this was a high threshold to exceed, especially with the state and local tax deduction being capped at $10,000.

However, there is a part of the tax code that allows individuals 70 ½ and older to still get the benefit of a charitable deduction, while also claiming the standard deduction.  This benefit is achieved by making a Qualified Charitable Distribution (QCD).  Once individuals reach age 70 ½, they are required to begin taking required minimum distributions (RMD) from their traditional IRA accounts.  If an individual does not need these funds to finance their retirement, they can request their IRA trustee to make a direct payment to a qualified charity.  The amount that would normally be taxable, if the individual received the distribution, would now be converted to a nontaxable distribution.  The distribution still satisfies the RMD requirement but does not count towards the taxpayers adjusted gross income (AGI).

By not counting the distribution towards AGI, the taxpayer can potentially realize additional tax savings, aside from the immediate 100% above the line deduction of the distribution, such as:

·       Lower state taxes, as most states begin their tax calculations using Federal AGI

·       Reduced taxable social security benefits

·       Lower potential of being subject to AGI phase out of $25,000 rental real estate exemption

·       Less chance of being subject to phase out of certain tax credits

·       Lower AGI can reduce a high-income beneficiary’s obligation to pay a greater monthly Medicare premium

There are several rules to be aware of in order to benefit from this tax savings opportunity.  First, the benefit cannot be used for distributions from SEP, SIMPLE, or qualified retirement plan accounts.  Second, no more than $100,000 can be donated per taxpayer each year.  For married couples, each spouse can make a separate $100,000 charitable distribution per year.   Finally, if the donor received any benefit from the charity for the donation, then the entire distribution will be considered taxable.   

If you have questions, call us at (219) 769-3616 or email them to tlynch@swartz-retson.com.