1 West 34th Street, 8th Floor, New York, NY 10001
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NEWSLETTER - WINTER 2015/2016
Dear clients, friends and colleagues,
It's been an exciting year at LM Cohen & Company with our recent addition of Larry Goldstein, his staff and clients. We have moved to our expanded new offices and we launched our new website with our rebranded logo.
We look forward to greeting you at our new location and we encourage you to explore our new website.
We want to wish you everyone a happy and healthy holiday season.
The Partners & Staff of LM Cohen & Co.
L.M. Cohen & Co. will be closed on the following days in observance of national and religious holidays:
Fri, Dec. 25
Fri, Jan. 1
Play or Pay: The Employer Health Care Mandate
Under the Affordable Care Act, the federal and state governments, insurers, employers, and individuals have been given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. As a result, all employers that are "applicable large employers" (ALEs) including for-profit, non-profit, and government entity employers, are subject to the Employer Shared Responsibility provisions, also known as the "employer mandate" or the "play or pay rules."
Therefore, starting in 2015, if you are an ALE that does not offer affordable health coverage that provides a minimum level of coverage to your full-time employees (and their dependents), you may be subject to an Employer Shared Responsibility payment if at least one of your full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace). Also, effective in 2015, ALEs are required to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage they offered.
You are an ALE if you employ at least 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees - known as full-time equivalents (FTEs). If the employer is related to other employers, the total number of FTEs for the whole group is counted, and if exceeds the threshold, each member is considered an ALE regardless of how many people it employs.
Transition Relief for 2015
For employers that employed on average at least 50 but fewer than 100 FTEs on business days during 2014, and that meet certain other conditions, no Employer Shared Responsibility payment will apply for any calendar month during 2015. If the 2015 health plan year is non-calendar and extends into 2016, this relief also applies to calendar months during the 2015 plan year that fall in 2016.
It is important to note that this transition relief applies only to whether or not the Employer Shared Responsibility payment must be paid. Employers with 50 or more FTEs in 2014 are still classified as ALEs in 2015, and must file information reports (discussed later) in early 2016.
Full-Time Employees and Full-Time Equivalents
An employer identifies its full-time employees based on each employee's hours of service. An employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week. Part-time employees are calculated as FTEs by taking the total hours worked by a part-time employee and dividing by 30. For example, an employer that employs 40 full-time employees (that is, employees employed 30 or more hours per week on average) and 20 employees employed 15 hours per week on average has the equivalent of 50 full-time employees, and would be an ALE.
Seasonal workers are taken into account in determining the number of full-time employees, with certain exceptions. Also, for purposes of determining whether an employer is an ALE, all employees are counted (subject to a limited exception for certain seasonal workers), regardless of whether they are eligible for health coverage from another source, such as Medicare, Medicaid, or a spouse's employer.
The employer determines each year, based on the current number of employees, whether it will be considered an ALE for the following year. For example, if an employer has at least 50 full-time employees (including FTEs) for 2014, it is considered an ALE for 2015. Since employers will be performing this calculation for the first time to determine their status for 2015, a transition rule exists to make this first calculation easier.
Affordable Health Care Coverage...
If an employee's share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee's annual household income, the coverage is not considered affordable for that employee. Because employers generally will not know their employees' household incomes, employers can take advantage of one or more of three affordability safe harbors.
...That Provides a Minimum Level of Coverage
A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services (HHS) and the IRS have produced a minimum value calculator. By entering certain information about the plan, such as deductibles and co-pays, into the calculator employers can get a determination as to whether the plan provides minimum value. Additionally, there are proposed regulations regarding other methods available to determine minimum value.
Calculation of Employer Shared Responsibility Payment
If an ALE does not offer coverage, or offers coverage to fewer than 70 percent of full-time employees in 2015 (95 percent of its full-time employees and their dependents after 2015), it owes an Employer Shared Responsibility payment equal to the number of full-time employees the employer employed for the year, minus 30, multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit. For purposes of calculating the payment, only actual full-time employees (not FTEs) are counted. Under the transition rule discussed above, the 30-employee exclusion is increased to 80 for 2015 only.
For an employer that offers coverage for some months but not others during the calendar year, the payment is computed separately for each month for which coverage was not offered. The amount of the payment for the month equals the number of full-time employees the employer employed for that month, minus 30 (80 in 2015) multiplied by 1/12 of $2,000 ($167). If the employer is related to other employers, the 30 (or 80) employee exclusion is allocated among all the related employers in proportion to each employer's number of full-time employees.
If an employer offers health coverage that is affordable and that provides minimum value to its full-time employees and (starting in 2016) their dependents, it will not generally be subject to an Employer Shared Responsibility payment if some of its employees still chose to purchase health insurance through a Marketplace, or if some of its employees enroll in Medicare or Medicaid.
The Shared Responsibility Payment is not self-assessed and does not appear on any tax return. The IRS will bill the employer for it after it reviews all the information reporting that it receives for the year.
The Affordable Care Act requires ALEs to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered. An ALE that sponsors self-insured group health plans is also required to report information about the health coverage it provides. The IRS will use the information provided on the information return to administer the employer shared responsibility provisions of the Affordable Care Act. The IRS and the employees of an ALE will also use the information provided as part of the determination of whether an employee is eligible for the premium tax credit.
An ALE (even one eligible for the 2015 transition relief from making the Shared Responsibility Payment) must file information returns with the IRS and furnish statements to employees beginning in 2016, to report information about its offers of health coverage to its full-time employees for calendar year 2015. In general, each ALE may satisfy the information reporting requirement by filing a Form 1094-C (transmittal) and, for each full-time employee, a Form 1095-C (employee statement), or other forms the IRS may designate. An ALE that maintains a self-insured plan may also uses a Form 1095-C to satisfy the combined reporting requirements. Alternative reporting methods for eligible ALEs are available.
An ALE is required to report information about the health coverage, if any, offered to its full-time employees, including whether an offer of health coverage was (or was not) made. This requirement applies to all ALEs, regardless of whether they offered health coverage to all, none, or some of their full-time employees. Therefore, even if an ALE does not offer coverage to any of its full-time employees, it must file returns with the IRS and furnish statements to each of its full-time employees to report information specifying that coverage was not offered.
A Final Word
The vast majority of businesses fall below the threshold that makes them subject to the Employer Shared Responsibility provisions. However, for those that are ALEs, 2015 is a significant year in the implementation of the Affordable Care Act. This article provides highlights of the Employer Shared Responsibility provisions. If you have additional questions related to identifying full-time employees, whether or not you are eligible under the transition rules, the role of dependent coverage, or details on minimum value, please call our office. We will be happy to assist you.
IRS Increases De Minimis Safe Harbor
Expensing Threshold from $500 to $2,500
Many of our business clients may have noticed something different in their 2014 tax returns - one or more elections, or a statement, or maybe even Form 3115 (Change in Accounting Method). This was to comply with the IRS's new Tangible Property Regulations that came out at the end of 2014.
One of the elections, the "de minimis safe harbor," allows a company with a book accounting policy in place at the beginning of the year to expense (rather than capitalize) repair or asset items costing up to a certain dollar amount without having to prove to the IRS that expensing is appropriate. This allows it to immediately deduct expenditures that would otherwise need to be spread over a period of years through depreciation. The dollar threshold is applied to the cost of each separately invoiced item (or item separately listed on an invoice) - it is not an annual limit.
If a company's policy is to expense items costing more than the IRS threshold, it can still use a greater cutoff, but for items costing more than the de minimis safe harbor limit it has the burden of showing that expensing is appropriate. Even if your company limit is higher, LM Cohen & Co. will make the annual de minimis election in your return so you will have the safe harbor protection for lower-priced items (Form 3115 is not required because the safe harbor is an annual election, not an accounting method).
The de minimis safe harbor limit for companies that produce an audited financial statement is invoices (or items listed separately on an invoice) of $5,000 or less. Many of our clients engage us to review or compile their financials, a lower level of service than an audit, or to just do a tax closing, so it is important to note that only
audited financial statements qualify a company for this higher limit.
For companies that do not have audited financial statements, the de minimis safe harbor in the original regulations was $500. Over 150 businesses and practitioners complained to the IRS that this limit was too low, and did not serve the intended purpose of the safe harbor to simplify the administrative burden of capitalizing many common items like tablet computers, smart phones, machinery, and equipment parts.
In response, on November 24
the IRS increased the maximum threshold for taxpayers without audited financials five-fold, from $500 to $2,500, effective for tax years beginning on or after January 1, 2016. The $5,000 threshold for taxpayers with audited financial statements has not been changed. Although the new rules are effective for 2016, the IRS has also stated that, for taxpayers without audited financial statements, in most cases it will not raise on audit (or will not pursue if already raised) the issue of expensed items up to $2,500 for tax years since 2012.
In order to take advantage of the safe harbor for 2016, certain requirements must be met. One of these is that the taxpayer has accounting procedures in place as of the beginning of the year treating as an expense for book purposes amounts paid for property costing less than a specified dollar amount. For a business with audited financial statements, this procedure must be in its written accounting procedures when the year begins. The expensing limit chosen by other taxpayers need not be in writing, but should be consistently followed from the beginning of the year to show that it was in place all year.
Clock Ticks Down to Year-End Passage of
If that headline looks familiar, you are correct. This subject has repeated itself every year recently, and there was a similar article in our year-end newsletter last year. The issue's current incarnation involves a package of 50-plus tax breaks that expired at the end of 2014. They are called "tax extenders" because Congress typically only extends them for a year or two at a time when they expire, but many of them are quasi-permanent (the research credit, for example, has been extended at least 15 times since 1981).
As 2015 winds down, at least another temporary extension of all or most of the tax extenders appears likely. Despite talk in early 2015 about finding a permanent solution to the on-again, off-again extenders, the arrival of December once again brings a short window for Congress to extend these tax breaks. The expected late passage of these popular tax breaks also adds uncertainty to year-end tax planning as well as possibly causing a delay to the start of the 2016 filing season.
A host of temporary but popular tax incentives expired after December 31, 2014. Under current law, these incentives are generally unavailable for 2015.
For individuals, the popular state and local sales tax deduction, higher education tuition and fees deduction, exclusion of cancellation indebtedness on principal residence, the residential energy credit, charitable distributions from IRAs, and the teachers' classroom expense deduction have all expired. Unless extended, taxpayers will not be able to claim these incentives when they file their 2015 returns in 2016.
For businesses, the list of expired extenders is lengthy. The biggest two involve fixed asset additions. Enhanced expensing under Code Sec. 179 allowed up to $500,000 of assets to be written off in the year placed in service, at least through 2014. Without extender legislation, this drops to only $25,000 in 2015. Bonus depreciation allowed 50% of fixed asset additions, including computer software, to be expensed with no limitation at all - this disappears completely after 2014 in the absence of new legislation. Dozens of other expired provisions for businesses include the 100% exclusion for gain on sale of qualified small business stock, reduced recognition period for S corporation built-in gains tax, S corporations making charitable donations of property, and a number of targeted credits.
Earlier this year, the House Ways and Means Committee (and for some provisions, the full House) approved legislation making some of the extenders permanent and phasing out others over five years. The Senate Finance Committee chose instead to extend all of the tax provisions for two years. House and Senate negotiators are considering a bill, estimated to cost $700 billion over ten years, largely based on the House model. The earlier House proposals included making permanent the enhanced
Section 179 limit, the research and development credit, deductions for state and local sales taxes, and provisions related to charitable giving. Other popular provisions, including bonus depreciation and the Work Opportunity Tax Credit, would be phased out after five years.
Predictably, negotiations are proceeding along partisan lines, with Republicans favoring making many business benefits permanent and Democrats and the White House resisting this idea. But Democrats have left open the door if Republicans are willing to make other provisions favored by Democrats permanent, including the child care tax credit, the earned income tax credit and the American Opportunity Tax Credit. Although the timing of full House and Senate floor action remains up in the air, lawmakers would like to finish negotiations this week (week ending Friday, December 4).
House Majority Leader Kevin McCarthy (R-CA) said on Monday that he expects lawmakers to completely finish the legislation by December 18 when the House and Senate are slated to adjourn for the year. There is also the possibility that an extenders package could be attached to an omnibus spending bill that is a "must do" for lawmakers as government funding expires on December 11. "I would love to see permanency in some of these [provisions]" said McCarthy. "You've got to have certainty, especially for small businesses, families and others."
We will send you a News Alert with details, as we did last December, when and if a new extenders bill becomes law.
Not All Expired
While taxpayers wait for action on the extenders, some other popular individual tax breaks are available for 2015. They include the American Opportunity Tax Credit (an enhanced version of the Hope education credit, available through 2017) and the energy efficiency credit (available through 2016). Additionally, the $1,000 child tax credit has been made permanent (although certain related provisions expire after 2017). The student loan interest deduction and the child and dependent care credit are also now permanent.
Please contact our office if you have any questions about the tax extenders.
Tax-Related Identity Theft
Identity theft presents a challenge to businesses, organizations and governments, including the Internal Revenue Service. Tax-related identity theft occurs when someone uses a stolen social security number (SSN) to file a tax return to claim a fraudulent refund. Our last newsletter featured information about recent aggressive and sophisticated phone and email scams that target taxpayers with callers or senders falsely claiming to be employees of the IRS (or a state taxing agency). We offered tips to help you recognize when a call or message is suspicious.
Your SSN can also be stolen through other means, such as a data breach, a computer hack or a lost wallet. Several of our clients have encountered identity theft problems. Here are some additional tips to protect yourself from becoming a victim, and steps to take if you discover that someone may have stolen your identity.
Tips to protect you from becoming a victim of identity theft:
- Don't carry your social security card or any documents that include your SSN in your wallet or purse.
- Don't give a business your SSN just because they ask. Give it only when required.
- Protect your financial information.
- Check your credit report regularly. The IRS suggests you do this every 12 months, but we recommend you check more frequently, even as often as monthly.
- Review your Social Security Administration earnings statement annually. SSA is no longer automatically mailing these to everyone annually, but you can easily set up a personal account at www.SSA.gov to view your information (click "sign in" at the top of the screen).
- Secure personal information in your home. Consider placing the most sensitive documents in a safe deposit box.
- Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for internet accounts.
- Don't give personal information over the phone, through the mail or on the internet unless you have initiated the contact or you are sure you know who you are dealing with. Even then, remember it possible for others to intercept your communications.
Know the Warning Signs:
Be alert to possible tax-related identity theft. You may receive a notice from the IRS or, in filing your electronic return, we may discover and notify you that:
- More than one tax return was filed for you;
- You owe additional tax, have a refund offset or have had collection actions taken against you for a year you did not file a tax return;
- IRS records indicate you received more wages than you actually earned; or
- Your state or federal benefits (e.g. social security benefits) were reduced or cancelled because the agency received information reporting an income change.
Steps for Victims of Tax-Related Identity Theft:
- All victims of identity theft should follow the recommendations of the Federal Trade Commission: File a report with the local police.
- File a complaint with the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338.
- Contact one of the three major credit bureaus to place a "fraud alert' on your account:
- Equifax - www.equifax.com, 800-525-6285
- Experian - www.experian.com, 888-397-3742
- TransUnion - www.transunion.com, 800-680-7289
- Close any accounts that have been tampered with or opened fraudulently.
In addition, if your SSN has been compromised and you know or suspect you may be a victim of tax-related identity theft, take these additional steps:
- Contact us if you receive an IRS notice. We can help you to understand what the notice means and be sure you respond immediately to the IRS request.
- We can also prepare IRS Form 14039, Identity Theft Affidavit, if applicable.
- We encourage you to continue to pay your taxes and file your tax return. Under some circumstances, we will instruct you to do so by paper.
- If necessary, we will work on your behalf with the IRS Identity Protection Specialized Unit to seek a resolution to your identity theft.
The IRS has greatly reduced the time it takes to resolve identity theft cases but please know these are extremely complex cases, frequently touching on multiple issues and multiple tax years. It can be time consuming. A typical case can take about 120 days to resolve with the IRS.
Although identity theft affects only a small percentage of tax returns, it can not only delay your refund but have a major impact on your life. If you take steps to protect your information, you will reduce the risk of identity theft. However, if it becomes necessary, we are here to help you through the entire process and restore your peace of mind.
Upcoming Tax Deadlines for Federal,
NYS, NYC and NJ Taxpayers
- Corporation Tax Estimated tax payments for calendar year filers.
- New York State Sales Tax Return for November, for monthly filers.
- New York State Sales Tax Return for quarterly period ending November 30, for quarterly filers.
- New Jersey Sales Tax Return monthly remittance for November.
- 4th Quarter 2015 federal, NYS, NJ individual, estate & trust, and NYC UBT estimated tax payments.
- 4th Quarter 2015 pass-through entity estimated tax payments for non-resident owners.
- Payroll tax deposit for December, for employers on the monthly deposit rule.
- New York Sales Tax return for December, for monthly filers.
- New Jersey Sales Tax return for 4th Quarter 2015.
- Furnish Forms W-2, 1098, 1099 & W-2G to recipients.
- Deposit any FUTA tax owed through December 2015.
- Federal payroll tax Forms 940, 941, 943, 944 and 945.
- NYS and NJ payroll quarterly reports (Forms NYS-45 and NJ-927). NYS employer's quarterly MCTMT return.
- Applicable Large Employers furnish Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage) to all full-time employees.
- New W-4 due from employees who claimed exemption in 2015 (or start withholding).
- Payroll tax deposit for January, for employers on the monthly deposit rule.
- New York State Sales tax return for January, for monthly filers.
- New Jersey Sales tax monthly remittance for January.
- File Forms W-3/W-2, 1098, 1099, W-2 with government (paper filers).
- Partnership, Limited Liability Company, and Limited Liability Partnership Filing Fee for calendar year filers.
- Applicable Large Employers File Forms 1095-C (and transmittal Form 1094-C) with government (paper filers).
- Corporation and S-Corporation returns or extensions due for 2015 (Federal, NYS, NJ).
- NYS Corporations: 1st Quarter 2015 Estimate due with return or extension.
- Payroll tax deposit for February, for employers on the monthly deposit rule.
- Last date to make an S-Corporation election effective for 2015.
- New York Sales tax return for February, for monthly filers.
- New York Sales tax return for quarterly period ending February 28, for quarterly filers.
- New York Sales tax return for 12 months ended February 28, for annual filers.
- New York City Commercial Rent tax return for quarterly period ending February 28.
- New Jersey Sales tax monthly remittance for February.
- File forms W-3/W-2, 109, 1099, W-2G with government (e-filers).
- Applicable Large Employers File Form 1095-C (and transmittal Form 1094-C) with government (e-filers).
- 2015 individual, partnership, and trust & estate returns or extensions (Federal, NYS, NJ, NYC UBT).
- 1st quarter 2016 federal, NYS, NJ individual, trust & estate, and NYC UBT estimated tax payments.
- Payroll tax deposit for March, for employers on the month deposit rule.
- 2015 NJ corporation return or extension.
- Household employers: Schedule H due if not filing 1040.
- Last day to make a contributions to traditional IRA, Roth IRA, Health Savings Account, SEP-IRA or solo 401(k) for the 2015 tax year (however, if you get an extension, you will have until October 15th to fund a SEP-IRA or solo 401(k).)
- New York Sales tax return for March, for monthly filers.
- New Jersey Sales tax monthly remittance for March.
- NYS and NJ payroll quarterly reports (Forms NYS-45 and NJ-927).
- NYS employer's quarterly MCTMT return.