As we approach the end of the year and the final payroll run of 2011, there are a few tax credits, deductions and reminders you should be aware of before you begin processing W-2s. If you outsource your payroll services, your provider likely is aware of these issues, but it is worth keeping them in mind.

HIRE Act: The HIRE Act provided tax breaks in 2010 and potential tax credits that can be claimed in 2011. If a business or non-profit hired a qualified employee and that person remained employed for one full year, the employer can claim a credit worth up to $1,000 on its 2011 income taxes. Click here for more information on the HIRE Act.

Unemployed veterans: Recent legislation expanded the tax credit for hiring unemployed veterans, increasing the value of the credit and extending it through 2012. Click here for more information.

W-2 “add-backs”: Companies may offer a number of fringe benefits that are taxable to their employees/shareholders and must be included in the recipient’s wages unless the law specifically excludes them. Among the most common are:

  • Personal use of a company car.
  • The cost of group-term life insurance premiums beyond $50,000 worth of coverage. For greater-than-2% shareholders of an S Corporation, the entire cost of group-term life insurance must be included in the recipient’s wages.
  • The value of accident and health benefits for greater-than-2% shareholders of an S Corporation are included in the recipient’s wages. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the recipient’s wages subject to Social Security, Medicaire and FUTA taxes.
  • Employer-paid health savings account (HSA) contributions for greater-than-2% shareholders of an S Corporation should be included in the recipient’s wages or treated as distributions. Additionally, shareholders of an S Corporation are not eligible for pre-tax contributions to an HSA.

Finally, it is always worth remembering to maximize your Meals and Entertainment deduction. Click here for more information.

For more information on these issues, or to discuss other tax-planning ideas, contact your Barnes Dennig tax representative at (513) 241-8313.

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