On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA), commonly known as the Economic Stimulus Act.
There are several sections to the ARRA but there are two particular parts we want to make sure you are aware of: the Making Work Pay Tax Credit and the COBRA Premium Subsidy.
THE MAKING WORK PAY TAX CREDIT
For 2009 and 2010, the Making Work Pay provision of the ARRA will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. Publication 919 provides additional guidance for tax withholding.
If you process your own payroll in Quickbooks, you must download the latest payroll update before you’ll see the withholding changes. If Vital Systems processes your payroll, you should see the withholding changes by mid-April if you have not seen them already. If you have your withholding set at a flat dollar amount, you may or may not see any changes.
COBRA Premium Subsidy
If you are an employer subject to federal COBRA or similar requirements under state law, you may be required to accept a 35 percent premium payment from certain participants eligible under ARRA as payment in full for their monthly premium. (Note: The Minnesota & Wisconsin continuation laws are similar to COBRA, which means that most employers with fewer than 20 employees are included among the groups that must comply with the subsidy requirements. Please check with your broker or insurance agent to see if you must comply).
Employers must pay the remaining 65 percent of the premium on behalf of COBRA participants. You may recover the subsidy provided to assistance-eligible individuals by taking the 65 percent subsidy amount as a credit on your Employer’s Quarterly Federal Tax Return (Form 941) as early as first quarter 2009. The Internal Revenue Service (IRS) revised Form 941 by adding lines to report the number of COBRA premium assistance individuals and the total dollar amount of COBRA premium assistance payments.
Vital Systems will be using the new Form 941 for first quarter 2009. If we process your payroll and you have an employee who qualifies for the COBRA premium subsidy, please contact us immediately.
ADDITIONAL INFORMATION
For the latest updates and links to additional information on the Making Work Pay Tax Credit, the COBRA premium subsidy and other economic stimulus legislation that may affect your business please follow the links from our website: www.vitalsystems.biz or visit the IRS and Department of Labor websites directly.
Please keep in mind that Vital Systems does not render legal advice. You are solely responsible for determining, exercising, and managing your own rights and obligations under applicable laws. The information provided herein is of a general nature and is not intended to replace the advice and services of an attorney or your accounting professional.