SC Employers’ Update:The Overtime Rule

On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations.
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

1. Raises the salary threshold indicating eligibility from $455/week($23,660 per year) to $913/week ($47,476 per year)
2. Sets the total annual compensation requirement for highly compensated employees (HCE) at $134,004 (currently at $100,000)
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years beginning January 1, 2020

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
The final rule will become effective on December 1, 2016, giving employers six months to assess and comply. The final rule does not make any changes to the duties test for executive, administrative and professional employees.

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For more detailed guidance on the rule, visit these links:

Nothing in the Fair Labor Standards Act – or in the overtime rule – requires the choice between flexible work arrangements or opportunities for career advancement and complying with basic labor standards. There is no requirement that a worker must have a predetermined schedule, and nothing prohibits working whenever, wherever or however the worker and the employer agree.

The FLSA requires that employers keep certain records to ensure that workers get paid the wages they earn and are owed, it’s up to the employer to choose the method that works best for them and the needs of their workforce. There’s no requirement that employees “punch in” and “punch out.” Employers have flexibility in designing systems to make sure appropriate records are kept to track the number of hours worked each day.

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Year End Newsletter

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As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. A few unknown factors include turbulence in the stock market, overall economic uncertainty, and Congress’s failure to act on a number of important tax breaks that expired at the end of 2014. Some of these tax breaks ultimately may be retroactively reinstated and extended, as they were last year, but Congress may not decide the fate of these tax breaks until the very end of 2015 (or later). These breaks include:

Individuals

  • the option to deduct state and local sales and use taxes instead of state and local income taxes
  • the above-the-line-deduction for qualified higher education expenses
  • tax-free IRA distributions for charitable purposes by those age 70-1/2 or older
  • the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence

Businesses

  • 50% bonus first-year depreciation for most new machinery, equipment and software;
  • the $500,000 annual expensing limitation
  • the research tax credit
  • the 15-year write-off for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements

Higher-income earners have unique concerns to address when mapping out year-end plans. The 3.8% net investment income (NII) tax and the 0.9% Medicare tax on wages are still in effect. Both taxes come into play when income levels reach $250,000 for joint filers, $125,000 for married couples filing separately, and $200,000 in any other case.

Social Security loophole ending May 1, 2016 – The “file and suspend” loophole is a combination of Social Security rules that provides a legal benefit-claiming strategy for married couples where one partner is at least 66 years old. It essentially allows one spouse to claim the Social Security spousal benefit, while their other spouse’s retired worker benefit continues to grow in value by 8% a year until they claim the maximum benefit at the age of 70. After May 1, recipients will be able to claim whichever payment is higher (the retiree or the spousal benefit), but not game the system by switching from one to the other.

Employer Health Insurance Mandate  

  • For the 2015 plan year, employers with 100 or more full time and FTE employees must offer coverage to 70% of full time employees and dependents to age 26.
  • For the 2016 plan year, the requirement changes to employers with 50 or more full time and FTE employees and the coverage must be offered to 95% of full time employees and dependents to age 26.
  • As of July 1, 2015, employers are no longer allowed to reimburse employees for individual health coverage. The penalty is $100 per day or $36,500 per year, per employee. An employer who doesn’t have a group plan but still wishes to help employees with the cost of health insurance are recommended to increase that employee’s salary by the annual cost of health insurance.

South Carolina Tax Credits – for those of you in alternative minimum tax (AMT) that won’t benefit from a deduction of state taxes paid, you might want to consider paying your SC liability via a SC tax credit. And even those that aren’t in AMT, some of the available credits have charitable purposes and some can be purchased at discounts. Below are some of the credits and when they are available:

  • Transferable tax credits like the SC Textile Mills Credit – can be purchased at reduced rates. Taxpayers that qualify for the credit but cannot use the credit are granted permission to sell the credits to interested investors. The investors purchase the credits at a discount. Many of these sell out by year-end.
  • Community Development Tax Credit – invest cash or property into Community Development Corporations (CDC) or Community Development Financial Institutions (CDFI) and receive a tax credit and Federal charitable contribution in some instances.
  • SC Educational Credit for Exceptional Needs – allows you to donate to special needs programs, receive a Federal charitable contribution deduction, and a SC credit. This credit was sold out in a few weeks from its release in July 2015.
  • SCRA Industry Partnership Fund – allows you to donate to SC’s high-tech economy, receive a Federal charitable deduction, and a SC credit. This credit sells out in a day. The 2016 fund will open at 9 am on January 4th, 2016.

Additional Tax Planning Actions to Take Before December 31, 2015

Individuals

  • Realize losses on stock while substantially preserving your investment position.  With the market fluctuations in 2015, many portfolios had the opportunity to harvest losses to offset other investment gains.
  • Postpone income until 2016 and accelerate deductions into 2015 to lower your 2015 tax bill to enable you to claim larger deductions, credits, and other tax breaks for 2015 that are phased out over varying levels of adjusted gross income.
  • Consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2015.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2015 if you won’t be subject to the AMT in 2015.
  • Take an eligible rollover distribution from a qualified retirement plan before the end of 2015 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding is unavailable or won’t sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2015. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2015, but the withheld tax will be applied pro rata over the full 2015 tax year to reduce previous underpayments of estimated tax.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
  • If you can make yourself eligible to make health savings account (HSA) contributions by Dec. 1, 2015, you can make a full year’s worth of deductible HSA contributions for 2015.
  • Make gifts sheltered by the annual gift tax exclusion ($14k for 2015) before the end of the year and thereby save gift and estate taxes.

Businesses and Business Owners

  • Businesses should buy machinery and equipment before year end. Although the machinery and equipment expensing option is greatly reduced in 2015 (unless retroactively changed by legislation), making expenditures that qualify for this option can still get you thousands of dollars of current deductions that you wouldn’t otherwise get.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2015 deductions even if you don’t pay your credit card bill until after the end of the year.
  • Consider year-end bonuses for employees’ vs salary increases to boost salary deductions for 2015.
  • To reduce 2015 taxable income, consider disposing of a passive activity in 2015 if doing so will allow you to deduct suspended passive activity losses.
  • If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year- end steps that can be taken to save taxes. We will keep you updated on Congress’ decision to extend expired tax breaks. If you would like for us to prepare any year-end projections or discuss any of these strategies, please give us a call.

Happy Holidays!

Your Johnson & Lanning Team

Posted on January 20, 2016 by admin




SC TC 57-A for the Exceptional Needs Program Update!!

On Saturday the budget proviso creating the exceptional needs program was passed through conference committee. It permitted a total of $8M in tax credits for this program. We are now waiting for Governor Haley to sign this into law. Unlike last year, this credit is expected to go quickly. Credits are awarded on a first-come, first-served basis. We expect most of this to occur on July 1 or July 2nd. Credit will work just like last year so only can take up to 60% of your SC liability.

As soon as the window opens up, you will need to send in the TC-57A form (They are stating that this form could be updated so check the website) to the DOR requesting the tax credit. Email (from last year’s form) is: taxtech@sctax.org.

We also want to address that there are numerous agencies that sponsor the exceptional needs program. We encourage you to read about all of the agencies and determine the one that fits your beliefs and that produces the greatest impact in the community. The credit works the same for all of them – you just have to tell SCDOR which program you want to sponsor. Below are the agencies we know about and a link to their websites.

St Thomas Aquinas (Catholic based organization but 82% of its recipients are non-Catholic, public school children): http://stasfo.org/
Palmetto Kids First (general program): https://palmettokidsfirst.org/
Advance Carolina (SC Christian School Association): http://advancecarolina.com/
D.E.S.K (general program): http://www.scdesk.org/

Lastly, we have heard that there has been allotted $4M for a credit for individuals whose children are enrolled in special needs programs. This credit is $10K per student and the requirement is that you have had to pay at least that in tuition for the tax year for a special needs child.

Posted on June 25, 2015 by johnson-lanning




SCDOR Security Breach

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South Carolina taxpayers impacted by the 2012 security breach at the SC Department of Revenue are able to enroll for up to one year of identity and credit protection coverage with CSID by visiting www.scidprotection.com or by calling 855-880-2743.  Enrollment will remain open until October 1, 2014.

South Carolina’s taxpayers, their dependents, and businesses who filed an electronic South Carolina tax return between 1998 and 2012 may be eligible for this coverage and are encouraged by the SCDOR to enroll with CSID

Posted on January 7, 2014 by johnson-lanning




Year-end giving

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Rules for Clothing and Household Items

  • must be in good used condition or better

Guidelines for Monetary Donations

  • must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution
  • monetary donations include those made in cash or by check, electronic funds transfer, credit card and payroll deduction
  • must obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more

Reminders

To help plan your holiday-season and year-end giving, here are some additional reminders:

  • Contributions are deductible in the year made. Donations charged to a credit card before the end of 2012 count for 2012. This is true even if the credit card bill isn’t paid until 2013. Also, checks count for 2012 as long as they are mailed in 2012.
  • Check that the organization is qualified. To confirm, check this website: Exempt Organization Select Check,
  • Charitable contribution deduction is only available to taxpayers that itemize their deductions. A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.
  • The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

The best advice is to keep good records and receipts!!!

Posted on December 26, 2013 by johnson-lanning




Hire a Veteran and save on taxes

If you plan to hire soon, consider hiring veterans. By doing so, you may be able to claim the federal Work Opportunity Tax Credit (WOTC) worth thousands of dollars.

You must act soon. The WOTC is available to employers that hire qualified veterans before December 31, 2013.

Here are six key facts about the WOTC:

  1. Hiring Deadline.  Employers hiring qualified veterans before Jan. 1, 2014, may be able to claim the WOTC. The credit was set to expire at the end of 2012. The American Taxpayer Relief Act of 2012 extended it for one year. The WOTC expires on Dec. 31, 2013.
  2. Maximum Credit.  The tax credit limit is $9,600 per worker for employers that operate a taxable business. The limit for tax-exempt employers is $6,240 per worker.
  3. Credit Factors.  The credit amount depends on a number of factors. They include the length of time a veteran was unemployed, the number of hours worked and the amount of the wages paid during the first year of employment.
  4. Disabled Veterans.  Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.
  5. State Certification.  Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. They must file the form within 28 days after the qualified veteran starts work. For more information, visit the U.S. Department of Labor’s WOTC website.
  6. E-file.  Some states accept Form 8850 electronically.
Posted on December 17, 2013 by johnson-lanning