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Payroll Taxes

NJ Employers-Reduce Your Unemployment Tax Rates-August Deadline

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Did you check your NJ SUI rates?
In July all New Jersey employers received a Notice of Employer Contribution Rates. This is not a bill, but rather a summary of the manner

in which the NJ Department of Labor calculates your employer contribution rate for unemployment and  disability. This form enables you

to determine whether a voluntary  contribution would save you money in the subsequent year.

Can I reduce the NJ SUI rate?
A voluntary contribution increases the reserve balance and may reduce your contribution rate. Each employer should calculate the amount

of the voluntary contribution required to reduce the rate. The required voluntary payment should be compared to the savings realized from a lower rate.

The unemployment expense is a substantial component of the labor cost of staffing agencies. You should give it careful attention. If you wish to make a

voluntary contribution to your reserve balance you have 30 days from the date of your notice to do so. We recommend that you verify all the NJ DOL

calculations including the amount of the employer contributions and the benefits charged to your account. Report any discrepancies to the NJ Dept. of Labor.

By making a voluntary payment, employers may reduce the NJ SUI rate for the coming year. Please be aware that this payment increases your reserve

balance and helps reduce the NJ SUI rate in future years as well.

Avoid NJ DOL Audits- S-Corp Owners Should Take Reasonable Compensation

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Wages vs. S Corp. Income

In an S-Corporation, a popular choice of tax entity among businesses, an owner who works for the company is required to take wages. How much of the company’s income is classified as wages versus S Corp. income (reported to the owner on Form K-1) is up to the owner. The net income will be taxed regardless of how it’s classified. The big difference lies in federal employment taxes, which are not paid on K-1 income. Another consideration is that K-1 income is exempt from the new 3.8% Medicare tax. So it would seem like a no brainer to take the lowest salary possible, right? Think again. There are significant downsides to consider before taking an unreasonably low compensation.

Risk of IRS Penalties

Let us assume Sam Success worked full-time as the manager of his staffing agency, which has net income of $200,000 this year. If he decides to avoid payroll taxes and classify $20,000 as wages and $180,000 as K-1 income, the IRS will probably notice. Using industry averages and other factors, it will argue that the compensation was unreasonable and will therefore impose steep penalties on top of the payroll taxes owed for the difference between the unreasonable $20,000 and what they determined is reasonable compensation.

Avoid NJ DOL Audits

Even if the IRS doesn’t take notice, the State of New Jersey has taken an aggressive stance with regard to unreasonable compensation. New Jersey is looking to collect state unemployment insurance (SUI), and if Sam Success’ salary is less than the SUI threshold ($31,500 in 2014) it will likely be scrutinized.  The number of such NJ DOL audits is on the increase. Moreover, New Jersey will inform the IRS after taking its share.

Less Disability Coverage

If Sam Success was injured by an insured party, he wouldn’t be able to argue that as manager of a staffing agency he deserves at least $100,000 for lost wages. Since he only classified $20,000 as wages, he cannot claim that his lost wages are greater.

Goodbye Social Security and Pension Benefits

The amount one receives from Social Security depends on one’s wage income or other income subject to Social Security tax. By minimizing his wages, Sam is also minimizing his potential benefits. In addition the company’s contribution to his pension is based on his wages. Lower wages equals lower pension benefits.

Keep it Reasonable

When it comes to determining wages from your S-Corporation, reasonable compensation is the way to go. Your tax professional can advise you in determining just the right amount to classify as wages in order to maximize the tax advantages, while avoiding the aforementioned pitfalls.  

Good News for NJ Employers: Federal Unemployment Tax (FUTA) Surcharge Avoided

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New Jersey employers can breathe a sigh of relief, as Governor Christie has announced that new fiscal management practices have brought New Jersey’s Unemployment Insurance Trust Fund into solvency for the first time since 2009. This spares businesses from a drastic tax surcharge, as Federal Unemployment Tax (FUTA) was set to increase from the base rate of 0.6% ($42 maximum per employee) to 1.5% ($105 maximum per employee).  The surcharge is imposed when a state has borrowed from the Federal Unemployment Trust Fund and increases each year. In 2012, NJ employers paid 1.2% due to the surcharge ($84 maximum per employee). By repaying the loan to the Feds, employers will not be subject to this surcharge on their 2013 FUTA wages and will only pay the base rate of 0.6% ($42 maximum per employee).   

NJ Employer Contribution Deadline Arriving Soon

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 Beginning 2012, employers no longer receive an annual paper Notice of Employer Contribution Rates. Instead, the notice is now accessible through the Tax Web Enabled System (TWES). As a result of this change, it’s urgent that you check your TWES account as soon as possible. The new rates were posted as early as July 18, and there’s a 30 day deadline (from the date of “mailing”) to make a voluntary contribution. In many circumstances a voluntary contribution represents an excellent opportunity to reduce labor costs.  For more information regarding TWES check out our blog at: Set Up TWES Account.

 

The unemployment expense is a substantial component of your labor cost. Staffing agencies should give it careful attention. If you wish to make a voluntary contribution to your reserve balance you have 30 days from the date of your notice to do so. In addition, we suggest that you verify the amount of the employer contributions and the benefits charged to your account.  Report any discrepancies to the NJ Dept. of Labor.

 

If you would like assistance in determining if a voluntary contribution will save you money, please do not hesitate to contact us. We will provide you with an illustration of the benefits which you stand to reap from making such a contribution. You will be able to weigh the considerations and act accordingly.

 

 

Payroll Cards Under Investigation by N.Y. Attorney General

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If your company uses payroll cards to compensate its employees, watch out. New York Attorney General Eric Schneiderman has launched an investigation into companies that pay hourly employees by depositing payroll onto pre-paid cards. Why the concern? Payroll cards, like debit cards, typically have fees associated with inquiries, card replacement, ATM withdrawals, or inactivity. Schneiderman’s concern is that the fees associated with these cards may be insufficiently disclosed or excessive and that the fees reduce employees’ take home pay. Payroll cards can raise a host of legal issues for the employer as well. For example, federal law prohibits mandatory use of the cards as a condition of employment. It has been reported that many employees have been forced to accept the card. It would be highly advisable for employers to seek competent counsel to ensure their compliance before it’s too late.

 

Attention NJ Employers: 2013 FLINT Deadline is June 23rd

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What is the Flint assessment?

The NJ DOL borrowed money from the federal government to pay Unemployment Insurance Benefits. NJ law requires the government to pass on the interest costs of the loan to NJ employers.

Is this something new?

It’s comparatively new. This is the third year of the assessment.

How much is it?

The assessment is 0.73% of employer unemployment contributions made for 2012. The minimum assessment is $5. You should have received a bill in the mail recently. However, if you thought it was junk mail or moved and did not inform the state of your new address you might not have received it. It’s due June 23, after which it will accrue a 15% interest penalty, and you won’t know about it until NJ sends you a delinquency notice. Ouch!

How do I pay it?

Payment options include:

  • Check or money order payable to: NJDOLWD
  • EFT
  • E-check
  • Credit Card

To make a payment online, click here: NJ Division of Revenue On-Line Filing Service