April Means Taxes and Now More Complicated

Sunday, April 05, 2009

The American Recovery and Reinvestment Act of 2009 (ARRA) is already more than one month old and affects payroll processing and payroll tax filings.  At Infinisource Priority Pay, we have facilitated these changes and have ensured our payroll clients are in compliance with this new and complex law as it relates to payroll tax deposits, Form 941 filings and tax withholding tables, among other things.

Two April dates loom large when it comes to payroll processing.

First, when the IRS issued new tax withholding tables on Saturday, February 21, 2009, Infinisource updated these tables for our Priority Pay clients that same day! All employers were obligated to implement these tables no later than April 1, 2009.

The 65 percent COBRA subsidy affects employers and their payroll in many ways.  For Qualified Beneficiaries (QBs) who are considered to be assistance eligible individuals, the employer is required to accept the QB’s 35 percent premium payment as payment in full. All the while, the employer must continue to pay the full amount of premiums to the appropriate insurance carrier(s) for fully insured plans subject to COBRA.  Only when the employer receives the QB’s subsidized premium payment, may an employer credit the 65 percent subsidy against withholding for employee-paid and employer-paid Federal Insurance Contributions Act (FICA) taxes and Federal income tax (FIT) withholding payments.

Second, these reimbursements must be accounted for on a revised Form 941 form. Essentially, employers will need to report the total amount of payroll tax offset that occurs in a given quarter (on line 12a) and the number of individuals who are provided COBRA premium assistance (on line 12b). The normal Form 941 deadline is unchanged:  30 days after the close of the quarter. That means April 30, 2009, for first quarter 2009 Form 941s. Employers in good standing with the IRS typically have an automatic 10-day extension of the deadline. The IRS has made it clear that every step of the subsidy process – from involuntary termination all the way to Form 941 reporting – must be supported by clear documentation. More information on how to complete the form is available at www.irs.gov.

Infinisource Priority Pay is ready to assist our clients in managing the reimbursement and reporting process with appropriate documentation.   If you have a subsidy credit to submit as a result of a COBRA event, please contact our payroll department for processing. We will apply the credit to your tax liability and report it properly to the IRS.

Beginning in May, we are offering Payroll Compliance for Professionals seminars that will include information about ARRA. To register for a seminar or for further information about this new law and its effect on payroll, please go to www.infinisource.net . 

If you need additional information, please contact Laura Burlingame at 866-350-3040, Ext. 1988.  At Infinisource, we pride ourselves in delivering great payroll solutions efficiently while keeping our clients in compliance and providing the highest level of personal assistance.