Tax

Many businesses hire part-time or full-time workers, especially in the summer. These types of employees are referred to as seasonal workers, which the IRS defines as an employee who performs labor or services on a seasonal basis (i.e., six months or less). Examples of this kind of work include retail workers employed exclusively during holiday seasons, sports events, or during the harvest or commercial fishing season. Part-time and seasonal employees are subject to the same tax withholding rules that apply to other employees.

All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck; however, Form W-4 worksheets filled out by many employees do not distinguish between part-year jobs and full-year jobs. Taxpayers (including students–more about this topic below) with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability.

Changes to Withholding under Tax Reform

The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets starting in 2018.

Many taxpayers working part-time or who have seasonal jobs may not be aware of the changes in tax law that could affect their paycheck–and their 2018 tax returns when they file next year. Of note is that any changes a part-year employee makes to their withholding amount has a more significant impact on their paycheck than it does for employees who work year-round.

As such, now is a good time to perform a “paycheck check-up” using the Withholding Calculator, a special tool on the IRS website that can help taxpayers with part-year employment estimate their income, credits, adjustments, and deductions more accurately. It also checks to see whether a taxpayer is having the correct amount of tax withheld for their financial situation.

Using the withholding calculator

• First, the calculator asks about the dates of a taxpayer’s employment and accounts for a part-year employee’s shorter employment rather than assuming that their weekly tax withholding amount would be applied to a full year.
• Next, the calculator makes recommendations for part-year employees accordingly. If a taxpayer has more than one part-year job, the Withholding Calculator can account for this as well.

Taxpayers should have a completed 2017 tax return available and will also need their most recent pay stub before using the Withholding Calculator.

Calculator results depend on the accuracy of information entered. If a taxpayer’s personal circumstances change during the year, they should return to the calculator to check whether their withholding should be adjusted. For taxpayers who work for only part of the year, it’s best to do a “paycheck check-up” early in their employment period, so their tax withholding is most accurate from the start.

The Withholding Calculator does not request personally-identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, taxpayers should watch out for tax scams, especially via email or phone and be especially alert to cybercriminals impersonating the IRS. Remember, the IRS does not send emails related to the calculator or the information entered.

If you need to adjust your withholding

If the calculator results indicate a change in withholding amount, the employee should complete a new Form W-4 and should submit it to their employer as soon as possible. Employees with a change in personal circumstances that reduces the number of withholding allowances should submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

Students with Income from a Summer Job

If your child is a student with a summer job, the income your child earns over the summer is considered taxable income. For example, if your child is working as a waiter or a camp counselor, they may receive tips as part of their summer income. All tip income is taxable and is, therefore, subject to federal income tax.

Many students take on odd jobs over the summer to make extra cash. If this is your child’s situation, keep in mind that earnings received from self-employment are also subject to income tax. This includes income from odd jobs such as babysitting and lawn mowing. If your child has net earnings of $400 or more from self-employment, they also have to pay self-employment tax. Church employee income of $108.28 or more must also pay self-employment tax. This tax pays for benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax; however, special rules apply to services performed as a newspaper carrier or distributor. As a direct seller, your child is treated as being self-employed for federal tax purposes if the following conditions are met:

• Your child is in the business of delivering newspapers.
• All pay for these services directly relates to sales rather than to the number of hours worked.
• Delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax purposes.

If your child participates in advanced training as an ROTC student and receives a subsistence allowance it is not taxable. Active duty pay, for example, pay received during a summer advanced camp, is taxable, however.

Help is just a phone call away.

As a seasonal or part-time worker, you may not be required to file a federal or state return if the wages you earn at a part-time or seasonal job are less than the standard deduction; however, if you work more than one job, you may end up owing tax. As you can see, seasonal and part-time workers have unique tax situations. If you have any questions about your tax situation, please call.

• By Leon Clinton
• June 10, 2018

If you’re thinking about hiring new employees this this year you won’t want to miss out on tax breaks available to businesses with employees.

1. Payroll Tax Deduction for Startups

As part of the Research & Development Tax Credit, for tax years 2016 and beyond, startup businesses (C-corps and S-corps) with little to no revenue that qualify for the research and development tax credit can apply the credit against employer-paid Social Security taxes instead of income tax owed. Sole proprietorships, as well as Partnerships, C-corps and S-corps with gross receipts of less than $5 million for the current year and with no gross receipts for the previous year, can take advantage of the credit. Up to $250,000 in payroll costs can be offset by the credit.

2. Work Opportunity Credit

The Work Opportunity Tax Credit (WOTC) is a federal tax credit for employers that hire employees from the following targeted groups of individuals:

• A member of a family that is a Qualified Food Stamp Recipient
• A member of a family that is a Qualified Aid to Families with Dependent Children (AFDC) Recipient
• Qualified Veterans
• Qualified Ex-Felons, Pardoned, Paroled or Work Release Individuals
• Vocational Rehabilitation Referrals
• Qualified Summer Youths
• Qualified Supplemental Security Income (SSI) Recipients
• Qualified Individuals living within an Empowerment Zone or Rural Renewal Community
• Long Term Family Assistance Recipient (TANF) (formerly known as Welfare to Work)

The tax credit (a maximum of $9,600) is taken as a general business credit (Form 3800, General Business Credit), and is applied against tax liability on business income. It is limited to the amount of the business income tax liability or social security tax owed. Normal carryback and carryforward rules apply.

For qualified tax-exempt organizations, the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period the credit is claimed.

Also, an employer must obtain certification that an individual is a member of the targeted group before the employer may claim the credit.

Note: The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC) for all targeted group employee categories that were in effect prior to the enactment of the PATH Act, if the individual began or begins work for the employer after December 31, 2014 and before January 1, 2020.

For tax-exempt employers, the PATH Act retroactively allows them to claim the WOTC for qualified veterans who begin work for the employer after December 31, 2014, and before January 1, 2020.

3. Disabled Access Credit

Employers that hire disabled workers might also be able to take advantage of two additional tax credits in addition to the WOTC.

The Disabled Access Credit is a non-refundable credit for small businesses that incur expenditures for the purpose of providing access to persons with disabilities. An eligible small business is one that earned $1 million or less or had no more than 30 full-time employees in the previous year; they may take the credit each, and every year they incur access expenditures. Eligible expenditures include amounts paid or incurred to:

1. Remove barriers that prevent a business from being accessible to or usable by individuals with disabilities;2. Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals;

3. Provide qualified readers, taped texts, and other methods of making visual materials available to individuals with visual impairments; or

4. Acquire or modify equipment or devices for individuals with disabilities.

4. Architectural Barrier Removal Tax Deduction

The Architectural Barrier Removal Tax Deduction encourages businesses of any size to remove architectural and transportation barriers to the mobility of persons with disabilities and the elderly. Businesses may claim a deduction of up to $15,000 a year for qualified expenses for items that normally must be capitalized. Businesses claim the deduction by listing it as a separate expense on their income tax return.

Businesses may use the Disabled Tax Credit and the Architectural/Transportation Tax Deduction together in the same tax year if the expenses meet the requirements of both sections. To use both, the deduction is equal to the difference between the total expenditures and the amount of the credit claimed.

5. State Tax Credits

Many states use tax credits and deductions as incentives for hiring and job growth. Employers are eligible for these credits and deductions when they create new jobs and hire employees that meet certain requirements. Examples include the New Employment Credit (NEC) in California, the Kentucky Small Business Tax Credit, and Empire Zone Tax Credits in New York.

6. FICA Tip Tax Credit

Certain food and beverage establishments can claim a credit for social security and Medicare taxes paid or incurred by the employer on certain employees’ tips. The credit is part of the general business credit. To take advantage of this credit, restaurant managers must complete IRS Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips. If the restaurant employs more than 10 tipped employees, then IRS Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips is used to report tips and determine allocated tips for tipped employees. The credit is not refundable (there must be taxable income); however, unused FICA credits may be carried back one year or carried forward up to 20 years.

Questions?

If you’re a business owner and are wondering what tax breaks your business qualifies for, don’t hesitate to call the office and speak to a tax and accounting professional you can trust.

• By Leon Clinton
• June 9, 2018

What should you do if you already filed your federal tax return and then discover a mistake? First of all, don’t worry. In most cases, all you have to do is file an amended tax return. But before you do that, here is what you should be aware of when filing an amended tax return.

Taxpayers should use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended (corrected) tax return.

An amended return cannot be e-filed. You must file the corrected tax return on paper. If you need to file another schedule or form, don’t forget to attach it to the amended return.

An amended tax return should only be filed to correct errors or make changes to your original tax return. For example, you should amend your return if you need to change your filing status or correct your income, deductions or credits.

You normally do not need to file an amended return to correct math errors because the IRS automatically makes those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will mail you a request asking for those.

If you are amending more than one tax return, prepare a separate 1040X for each return and mail them to the IRS in separate envelopes. Note the tax year of the return you are amending at the top of Form 1040X. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.

If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 16 weeks to process. You may cash your original refund check while waiting for the additional refund.

If you owe additional taxes file Form 1040X and pay the tax as soon as possible to minimize interest and penalties. You can use IRS Direct Pay to pay your tax directly from your checking or savings account.

Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. For example, the last day for most people to file a 2014 claim for a refund is April 17, 2018. Special rules may apply to certain claims. Please call the office if you would like more information about this topic.

You can track the status of your amended tax return for the current year three weeks after you file. You can also check the status of amended returns for up to three prior years. To use the “Where’s My Amended Return” tool on the IRS website, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each.

Don’t hesitate to call if you need assistance filing an amended return or have any questions about Form 1040X.

• By Leon Clinton
• June 8, 2018