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April Deadline for Employers to Claim FICA Tax Refunds on 2010 Severance Pay

The issue of whether FICA payroll taxes are due on severance payments is currently being reviewed by the U.S. Supreme Court.  If the Supreme Court finds FICA taxes are not due, employers will have to file refund claims for taxes previously paid on severance payments.  Unless the Supreme Court issues its opinion before April 15, 2014, an employer must file a refund claim by that date in order to preserve a refund right for any such taxes paid in 2010. (It is already too late to file refund claims for FICA taxes paid in 2009 or earlier.)  For severance payments made in tax years after 2010, employers should wait for the Supreme Court’s decision before taking any action to avoid unnecessary expenses.  There are specific rules for filing such a refund claim, including the need to obtain employee consent to avoid reimbursement obligations to the employee, and for filing appeals… Continue Reading

California Reduces State Income Tax Penalty for Section 409A Violations

California recently enacted legislation that reduces the state’s income tax penalty for violations of Section 409A of the federal Internal Revenue Code of 1986, as amended (“Section 409A”), from 20 percent to 5 percent.  The reduction is effective for taxable years beginning on or after January 1, 2013, but does not affect the state’s interest penalty tax or federal penalties related to Section 409A violations.  The new law can be found here.

Procedures Announced for Employers to Correct Overpayments of Employment Taxes Related to Benefits Provided to Same-Sex Spouses

The IRS announced two special procedures for employers to correct overpayments of employment taxes made in 2013.  The first procedure allows employers to use the fourth quarter 2013 Form 941, Employer’s Quarterly Federal Tax Return, to correct the overpayment of FICA and federal income tax withholdings made during the first three quarters of 2013.  The second procedure allows employers to file one Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct the overpayment of FICA taxes during all quarters of 2013.  For the overpayment of FICA taxes in years prior to 2013, employers may make a claim or adjustment for all four calendar quarters of a specific year by filing one Form 941-X.  The employer can file a Form 941-X filed for the fourth quarter of a specific year if the year is still open under the statute of… Continue Reading

IRS Issues Guidance Regarding Medicare Tax Effective January 1, 2013

Effective January 1, 2013, employers must withhold an additional Medicare tax of 0.9% from the wages of employees who earn $200,000 or more. The IRS issued Frequently Asked Questions (FAQs) to help employers implement this new tax. The FAQs state that the employer must withhold the additional tax beginning with the pay period in which it pays wages in excess of $200,000 to an employee. The tax applies only to the wages over the $200,000 threshold. There is no requirement to notify employees once the employer begins withholding the additional tax and there is no employer contribution required with respect to the tax. The IRS plans to release revised Forms 941, 943 and the tax return schemas for the Form 94X series of returns. The IRS’ FAQs can be found here.

IRS Eases Rules for Deduction of Employee Bonuses

The Internal Revenue Service recently released a Revenue Ruling allowing an employer using an accrual method of accounting for income tax purposes to take a deduction in the current year for a fixed total amount of bonuses payable to a group of employees, even though the employer does not know which of the employees will receive a bonus or the amount of any particular bonus until after the end of the taxable year. A current year deduction is allowed where the total amount of the bonuses is determinable through either (1) a formula that is fixed prior to the end of the taxable year, or (2) other corporate action made before the end of the taxable year that fixes the bonuses payable to the employees as a group. The Revenue Ruling is available here.

Health Coverage Tax Credit Increased

The Trade Adjustment Assistance Extension Act of 2011 increased the health coverage tax credit (HCTC) that is generally available to eligible individuals under the Trade Adjustment Assistance Program and the Alternative Trade Adjustment Assistance Program. As amended, the HCTC allows a taxpayer to take a credit equal to 72.5 percent of the amount paid by the taxpayer for coverage of the taxpayer and family members under qualified health insurance during the taxable year. The increased credit applies to all coverage months beginning after February 12, 2011. A copy of the Trade Adjustment Assistance Extension Act of 2011 is available here.

>UK Looking To Offer Tax Incentives for the Gaming Industry

>In the Economic and Fiscal Strategy Report and Financial Statement and Budget Report issued today by the Chancellor of the Exchequer for the United Kingdom, one of the key strategy points raised in conjunction with the overall fiscal strategy of the United Kingdom was to introduce “tax relief for the UK’s video games industry.” Recognition at the highest levels of government of the financial impact of the video game industry — it truly is becoming a Gamer’s World.

>Korea Inches Closer to Virtual Currency

>We’ve previously discussed here on the blog the increasing interplay between virtual assets and real-world money. In the coming years, the waves of government regulation and legal action will continue to build amplitude as the virtual assets created within virtual worlds become more easily and profitably converted to real world money. With virtual worlds growing in size and the online gaming player population booming, the development of the law in this area will have wide-reaching ramifications. The Supreme Court of Korea marked its involvement on Sunday, ruling that virtual currency used in online games may be exchanged for real-world cash. The ruling was the result of the acquittal of two gamers, who were originally charged with violating a Korean law targeted at online gambling, which banned the exchange of virtual currency for hard currency. The gamers were accused under the law with selling virtual currency know as “Aden” from a… Continue Reading

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