A few surprises for employers are lurking in the President’s newly released Fiscal Year 2011 budget proposal.
Here’s a look at six that affect HR and Payroll:
- Extend COBRA health insurance premium assistance. The proposal would extend the eligibility period by allowing qualifying individuals who suffer an involuntary termination prior to 1/1/11 to qualify for assistance. Premium assistance that results from an involuntary termination after 2/28/10 would be 12 months. If the proposal isn’t enacted before March 2010, there are provisions for individuals who become qualified as a result of an involuntary termination after 2/28/10.
- Remove cell phones from listed property. This means there’d no longer be strict substantiation requirements for the use and the limitation on depreciation deductions on cell phones and other similar telecommunications equipment (e.g., Blackberrys). The fair market value of personal use of a cell phone provided primarily for business purposes would be excluded from an employee’s gross income. The proposal would be effective for taxable years ending after the date of enactment – so, as early as 2010. The suggested change comes because substantiation requirements for listed property are burdensome for employers, employees and the IRS. Plus, there’s been a significant drop in the cost of service since cell phones were first classified as listed property – so now the cost of accounting for personal use often exceeds the amount of any resulting income.
- Make the ‘temporary’ 0.2% FUTA surtax permanent. Extending the surtax will support continued solvency of the federal unemployment trust funds.
- Begin automatic enrollment in retirement plans. Employers in business at least two years and with more than 10 employees would be required to offer an automatic IRA option to employees. Regular contributions would be made to an IRA on a payroll-deduction basis. However, companies are off the hook for this requirement if they sponsored a qualified retirement plan, SEP or SIMPLE plan. Employers that do offer automatic IRAs would inform employees about the program with a standard notice and election form – and allow them to opt out. In return, employers offering a program could claim a tax credit for making automatic payroll-deposit IRAs available to employees. The credit amount? $25 per enrolled employee, up to $250. The credit would be available for two years. This proposal would become effective 1/1/12.
- Make it easier to properly classify independent contractors. IRS would be permitted to require prospective reclassification of workers who are currently misclassified, and whose reclassification is prohibited under current law. The Department of the Treasury and IRS would also be permitted to issue new guidance on the proper classification of workers under common law standards – allowing companies to properly classify workers with much less concern about future IRS examinations. Also, IRS would be allowed to give the Department of Labor info about service recipients whose workers are reclassified. Changes afoot for employers, too: Independent contractors receiving payments totaling $600 or more in a calendar year from a service recipient would be permitted to require withholding for federal tax purposes a flat-rate percentage of their gross payments, with the amount being selected by the contractor.
- Reinstate previous tax brackets. The President proposes reinstating after 2010 the 36% tax rate for those with taxable income above the following:
— $250,000 less the standard deduction and two personal exemptions, indexed from 2009, for married taxpayers filing jointly, and
— $200,000 less the standard deduction and one personal exemption, indexed for inflation from 2009, for single filers.
The 28% tax bracket would be expanded so that taxpayers earning less than these amounts wouldn’t see their taxes rise as a result of the new brackets.
You can read the Treasury’s “General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals” (also known as “The Green Book”) here.