With tax year 2010 fast coming to an end, the Internal Revenue Service has released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. The release includes a one-page form and instructions small employers will use to claim the credit for the tax year 2010.

New Form 8941, Credit for Small Employer Health Insurance Premiums, and newly revised Form 990-T are now available on IRS.gov. The IRS also posted on its website the instructions to Form 8941 and Notice 2010-82, both of which are designed to help small employers correctly figure and claim the credit.

Included in the Affordable Care Act enacted in March, the small business health care tax credit is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain the coverage they already have.

The new guidance addresses small business questions about which firms qualify for the credit by clarifying that a broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multiemployer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.

In general, the credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.

Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Though primarily filed by those organizations liable for the tax on unrelated business income, Form 990-T will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.

More information about the credit, including a step-by-step guide to claiming the credit and answers to frequently asked questions, is available on the Affordable Care Act page on IRS.gov.

Aiming to attract more investors, the UK Government has published details of its Corporate Tax Reform program consisting of a series of essential reforms designed to improve the UK’s tax competitiveness. Measures include the introduction of new Controlled Foreign Company (CFC) rules and a commitment to introduce a Patent Box (re taxing profits from patents).

The UK Government wants the UK to be a favored place for businesses to invest. That is why the June Budget announced the reduction of Corporation Tax for large and small businesses with a cut in the main rate from 28% to 24% over the next 4 years and a reduction in the small profits rate from 21% to 20% from April 2011.

However, the Government recognizes that a competitive corporate tax system is not just about rates. That is why the Government has published the document ‘Corporate Tax Reform: delivering a more competitive system.’ This document is designed to provide a degree of certainty to business over the Government’s plans, as it works with business to deliver this ambitious program of reforms.

The tax reform announcements include:

• A Corporate Tax Road Map that commits to principles that will underpin these reforms and a clear timetable to deliver these changes, including how the Government will engage with business at each stage of policy development;
• Details on how the Government will reform the UK’s outdated Controlled Foreign Company (CFC) rules by introducing more targeted rules in 2012 and how they will apply to financing and intellectual property. As a first step to make the rules more competitive, a package of interim improvements will be introduced in 2011;
• introducing a Patent Box in April 2013 – a 10% Corporation Tax rate on profits from patents, reaffirming the Government’s commitment to retain and build on the existing Research and Development (R&D) tax credit scheme to create the right environment for innovative companies to prosper;
• A commitment to legislate an opt-in exemption for profits earned in foreign branches of UK companies in 2011. Under this more territorial approach, companies in the new regime will no longer be subject to UK Corporation Tax on their foreign branch profits.

This program ensures the Government’s commitment to a competitive and stable tax system that provides businesses with the confidence to expand and invest in the UK in the years ahead.

The UK Exchequer Secretary to the Treasury, David Gauke MP said:

In recent years, too many businesses have left the UK amid concerns over tax competitiveness. It’s time to reverse this trend. Our tax system was once viewed as an asset. And it needs to be an asset again.”

Gauke added, “That is why the Government is prioritizing corporate tax reform. Responding to the concerns of businesses, the UK is headed for a more competitive, simpler, and more stable tax system in the future, creating the right conditions for investment.”

Details of the announcement may be found at: http://www.hm-treasury.gov.uk/corporate_tax_reform.htm.

The New Year seems to be going to start right as the Internal Revenue Service released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011. The instructions will help millions of Americans take home higher pay as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 comes into effect.

Information to help implement the 2011 cut in payroll taxes is now on IRS.gov. Notice 1036 contains the percentage method income tax withholding tables, the lower Social Security withholding rate and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov soon.

With these developments, workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011.
The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

For any Social Security tax over withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2011.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms. >a href=”http://www.irs.gov/pub/irs-pdf/p919.pdf”>Publication 919, How Do I Adjust My Tax Withholding?, provides more information to workers on making changes to their tax withholding.

In another development, the IRS issued temporary and final regulations requiring all Federal tax deposits to be made using the Electronic Federal Tax Deposit System (EFTPS) beginning January 1, 2011.

The regulations note that the Treasury Department will no longer maintain the paper deposit coupon system after 2010. The regulations do not change the deposit requirements or thresholds. Taxpayers who owe minimal amounts and are not subject to the tax rules will continue to be permitted to make payment with the filed tax return. For example, Form 941 filers with a deposit liability of less than $2,500 for a return may continue to submit payment with the return.

Depositing electronically offers many advantages over the paper coupon system. It allows deposits to be made at any time, from a computer or telephone, and to schedule deposits in advance. The system also greatly reduces the possibility of errors and eliminates the need to order and retain coupons.

For more information, see the final regulations.

The Internal Revenue Service has announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2011. In general, these limits will either remain unchanged, or the inflation adjustments for 2011 will be small. Highlights include:

• The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan remains unchanged at $16,500.
• The catch-up contribution limit under those plans for those aged 50 and over remains unchanged at $5,500.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750.

Since many executives are losing the ability to save for retirement under tax-qualified retirement plans, employers may wish to consider  Supplemental Executive Retirement Plan. A SERP is a contractual arrangement between employers and select executives providing additional retirement benefits by taking into consideration amounts, such as compensation, above the statutory limitations noted below:

401(k) Plan Limits                                   2011                      2010                  2009

401(k) Elective Deferrals                          $16,500              $16,500              $16,500

Defined contributions annual

additions limit                                             $49,000              $49,000             $49,000

Annual compensation limit                       $245,000              $245,000         $245,000

Age 50 catch-up deferral limit                   $5,500                 $5,500             $5,500

Highly compensated employee

determination threshold                            $110,000              $110,000         $110,000

Non-401(k) Limits

403(b)/457 Plan elective deferrals             $16,500                 $16,500            $16,500

SIMPLE Employee Deferrals                    $11,500                 $11,500            $11,500

SIMPLE age 50 Catch up deferral limit     $2,500                   $2,500              $2,500

SEP Minimum compensation threshold     $550                       $550                $550

SEP Annual compensation limit                 $245,000               $245,000          $245,000

Defined Benefit Annual Additions Limit   $195,000                $195,000         $195,000

Social Security Wage Base                         $106,800                $106,800          $106,800

Amidst the spate of seemingly bad news hounding the nation, some good news has finally arrived. The rainbow indeed appears after the rain.

The Internal Revenue Service has announced a 1% interest rate cut for the calendar quarter beginning January 1, 2011.

The new rates will be:

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The announced interest rates are computed from the federal short-term rate during October 2010 to take effect November 1, 2010, based on daily compounding.

Revenue Ruling 2010-31, announcing the rates of interest appears in Internal Revenue Bulletin No. 2010-52, dated December 27, 2010.