517.789.8900 fax. 517.789.6477
113 w. michigan ave, suite 301, jackson, mi 49201

HOMEBLOGSmall Business Tax Briefs: May 2021


Small Business Tax Briefs: May 2021

Providing education assistance to employees? Follow these rules

Many businesses provide education fringe benefits so their employees can improve their skills and gain additional knowledge. An employee can receive, on a tax-free basis, up to $5,250 each year from his or her employer for educational assistance under a “qualified educational assistance program.”

For this purpose, “education” means any form of instruction or training that improves or develops an individual’s capabilities. It doesn’t matter if it’s job-related or part of a degree program. This includes employer-provided education assistance for graduate-level courses, including those normally taken by an individual pursuing a program leading to a business, medical, law or other advanced academic or professional degree.

Additional requirements

The educational assistance must be provided under a separate written plan that’s publicized to your employees, and must meet a number of conditions, including nondiscrimination requirements. In other words, it can’t discriminate in favor of highly compensated employees. In addition, not more than 5% of the amounts paid or incurred by the employer for educational assistance during the year may be provided for individuals who (including their spouses or dependents) who own 5% or more of the business.

No deduction or credit can be taken by the employee for any amount excluded from the employee’s income as an education assistance benefit.

Job-related education 

If you pay more than $5,250 for educational benefits for an employee during the year, he or she must generally pay tax on the amount over $5,250. Your business should include the amount in income in the employee’s wages. However, in addition to, or instead of applying, the $5,250 exclusion, an employer can satisfy an employee’s educational expenses, on a nontaxable basis, if the educational assistance is job-related. To qualify as job-related, the educational assistance must:

  • Maintain or improve skills required for the employee’s then-current job, or
  • Comply with certain express employer-imposed conditions for continued employment.

“Job-related” employer educational assistance isn’t subject to a dollar limit. To be job-related, the education can’t qualify the employee to meet the minimum educational requirements for qualification in his or her employment or other trade or business.

Educational assistance meeting the above “job-related” rules is excludable from an employee’s income as a working condition fringe benefit.

Student loans

In addition to education assistance, some employers offer student loan repayment assistance as a recruitment and retention tool. Recent COVID-19 relief laws may provide your employees with tax-free benefits. Contact us to learn more about setting up an education assistance or student loan repayment plan at your business.

Help ensure the IRS doesn’t reclassify independent contractors as employees

Many businesses use independent contractors to help keep their costs down. If you’re among them, make sure that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be a costly error.

It can be complex to determine whether a worker is an independent contractor or an employee for federal income and employment tax purposes. If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax. A business may also provide the worker with fringe benefits if it makes them available to other employees. In addition, there may be state tax obligations.

On the other hand, if a worker is an independent contractor, these obligations don’t apply. In that case, the business simply sends the contractor a Form 1099-NEC for the year showing the amount paid (if it’s $600 or more).

What are the factors the IRS considers?

Who is an “employee?” Unfortunately, there’s no uniform definition of the term.

The IRS and courts have generally ruled that individuals are employees if the organization they work for has the right to control and direct them in the jobs they’re performing. Otherwise, the individuals are generally independent contractors. But other factors are also taken into account including who provides tools and who pays expenses.

Some employers that have misclassified workers as independent contractors may get some relief from employment tax liabilities under Section 530. This protection generally applies only if an employer meets certain requirements. For example, the employer must file all federal returns consistent with its treatment of a worker as a contractor and it must treat all similarly situated workers as contractors.

Note: Section 530 doesn’t apply to certain types of workers.

Should you ask the IRS to decide?

Be aware that you can ask the IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee. However, be aware that the IRS has a history of classifying workers as employees rather than independent contractors.

Businesses should consult with us before filing Form SS-8 because it may alert the IRS that your business has worker classification issues — and it may unintentionally trigger an employment tax audit.

It may be better to properly treat a worker as an independent contractor so that the relationship complies with the tax rules.

Workers who want an official determination of their status can also file Form SS-8. Disgruntled independent contractors may do so because they feel entitled to employee benefits and want to eliminate self-employment tax liabilities.

If a worker files Form SS-8, the IRS will notify the business with a letter. It identifies the worker and includes a blank Form SS-8. The business is asked to complete and return the form to the IRS, which will render a classification decision.

These are the basic tax rules. In addition, the U.S. Labor Department has recently withdrawn a non-tax rule introduced under the Trump administration that would make it easier for businesses to classify workers as independent contractors. Contact us if you’d like to discuss how to classify workers at your business. We can help make sure that your workers are properly classified.

An S corporation could cut your self-employment tax

If your business is organized as a sole proprietorship or as a wholly owned limited liability company (LLC), you’re subject to both income tax and self-employment tax. There may be a way to cut your tax bill by conducting business as an S corporation.

Fundamentals of self-employment tax

The self-employment tax is imposed on 92.35% of self-employment income at a 12.4% rate for Social Security up to a certain maximum ($142,800 for 2021) and at a 2.9% rate for Medicare. No maximum tax limit applies to the Medicare tax. An additional 0.9% Medicare tax is imposed on income exceeding $250,000 for married couples ($125,000 for married persons filing separately) and $200,000 in all other cases.

What if you conduct your business as a partnership in which you’re a general partner? In that case, in addition to income tax, you’re subject to the self-employment tax on your distributive share of the partnership’s income. On the other hand, if you conduct your business as an S corporation, you’ll be subject to income tax, but not self-employment tax, on your share of the S corporation’s income.

An S corporation isn’t subject to tax at the corporate level. Instead, the corporation’s items of income, gain, loss and deduction are passed through to the shareholders. However, the income passed through to the shareholder isn’t treated as self-employment income. Thus, by using an S corporation, you may be able to avoid self-employment income tax.  

Keep your salary “reasonable”

Be aware that the IRS requires that the S corporation pay you reasonable compensation for your services to the business. The compensation is treated as wages subject to employment tax (split evenly between the corporation and the employee), which is equivalent to the self-employment tax. If the S corporation doesn’t pay you reasonable compensation for your services, the IRS may treat a portion of the S corporation’s distributions to you as wages and impose Social Security taxes on the amount it considers wages.

There’s no simple formula regarding what’s considered reasonable compensation. Presumably, reasonable compensation is the amount that unrelated employers would pay for comparable services under similar circumstances. There are many factors that should be taken into account in making this determination.

Converting from a C corporation 

There may be complications if you convert a C corporation to an S corporation. A “built-in gains tax” may apply when you dispose of appreciated assets held by the C corporation at the time of the conversion. However, there may be ways to minimize its impact.

Many factors to consider

Contact us if you’d like to discuss the factors involved in conducting your business as an S corporation, and how much the business should pay you as compensation.

The IRS has announced 2022 amounts for Health Savings Accounts

The IRS recently released guidance providing the 2022 inflation-adjusted amounts for Health Savings Accounts (HSAs).

Fundamentals of HSAs

An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).

A high deductible health plan (HDHP) is generally a plan with an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $5,000 for self-only coverage, and $10,000 for family coverage.

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

Inflation adjustments for next year

In Revenue Procedure 2021-25, the IRS released the 2022 inflation-adjusted figures for contributions to HSAs, which are as follows:

Annual contribution limitation. For calendar year 2022, the annual contribution limitation for an individual with self-only coverage under a HDHP will be $3,650. For an individual with family coverage, the amount will be $7,300. This is up from $3,600 and $7,200, respectively, for 2021.

High deductible health plan defined. For calendar year 2022, an HDHP will be a health plan with an annual deductible that isn’t less than $1,400 for self-only coverage or $2,800 for family coverage (these amounts are unchanged from 2021). In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to exceed $7,050 for self-only coverage or $14,100 for family coverage (up from $7,000 and $14,000, respectively, for 2021).

Many advantages

There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax free year after year and be can be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable.” It stays with an account holder if he or she changes employers or leaves the workforce. If you have questions about HSAs at your business, contact your employee benefits and tax advisors.

Leave A Comment


off white jordan 1
22 October, 2021

I really wanted to jot down a remark in order to express gratitude to you for these superb guidelines you are giving at this website. My particularly long internet lookup has finally been rewarded with wonderful suggestions to write about with my co-workers. I ‘d tell you that many of us readers are really fortunate to live in a wonderful community with many wonderful people with valuable basics. I feel extremely privileged to have come across the website page and look forward to so many more awesome times reading here. Thanks a lot again for everything.
off white jordan 1 off white jordan 1

authentic jordans
24 October, 2021

I simply wanted to develop a brief message to be able to say thanks to you for some of the unique tactics you are showing on this site. My particularly long internet look up has at the end been compensated with reasonable concept to talk about with my partners. I ‘d claim that many of us site visitors actually are quite blessed to live in a really good network with very many wonderful people with insightful secrets. I feel pretty happy to have encountered the website and look forward to plenty of more pleasurable moments reading here. Thank you again for all the details.
authentic jordans authentic jordans

off white
12 November, 2021

I am glad for commenting to make you know what a exceptional discovery my wife’s princess encountered using your webblog. She even learned such a lot of issues, most notably what it’s like to possess an excellent giving nature to let most people with ease comprehend several very confusing things. You undoubtedly did more than our own desires. Many thanks for offering these helpful, trustworthy, revealing not to mention cool guidance on this topic to Sandra.
off white off white

golden goose sneakers
14 November, 2021

I definitely wanted to type a simple comment in order to thank you for these unique solutions you are placing at this site. My time intensive internet look up has at the end been rewarded with brilliant points to talk about with my close friends. I ‘d tell you that many of us website visitors are unequivocally lucky to live in a perfect site with very many outstanding individuals with helpful secrets. I feel very privileged to have discovered your entire web page and look forward to plenty of more enjoyable moments reading here. Thank you once more for all the details.
golden goose sneakers golden goose sneakers

supreme shirt
16 November, 2021

I am just writing to make you be aware of of the beneficial experience my daughter gained browsing your web site. She mastered such a lot of things, which included what it’s like to have an incredible helping nature to make the others completely know selected multifaceted subject areas. You undoubtedly surpassed readers’ desires. I appreciate you for presenting such helpful, trusted, educational and also cool guidance on that topic to Lizeth.
supreme shirt supreme shirt

kawhi leonard shoes
18 November, 2021

I would like to convey my respect for your kindness for those people that should have guidance on this one theme. Your real dedication to getting the message around had been particularly powerful and have in most cases permitted others much like me to arrive at their aims. The useful help signifies a lot to me and substantially more to my peers. Thanks a ton; from each one of us.
kawhi leonard shoes kawhi leonard shoes

kyrie shoes
20 November, 2021

I wanted to write you a bit of word to finally say thanks a lot yet again just for the precious basics you’ve discussed in this case. It was simply tremendously open-handed with people like you to allow unhampered what exactly most people would’ve sold as an e book to earn some profit for their own end, certainly now that you could have done it in case you desired. Those secrets likewise acted to become a easy way to realize that other individuals have the identical passion similar to my personal own to find out more and more in respect of this matter. I am certain there are thousands of more pleasant sessions in the future for individuals that looked over your blog.
kyrie shoes kyrie shoes

supreme clothing
22 November, 2021

I not to mention my friends have already been looking at the best items located on your website and so all of a sudden got a horrible feeling I had not thanked the website owner for those secrets. All the guys came for that reason excited to study them and now have really been using them. Appreciation for indeed being simply kind and also for opting for varieties of fine tips millions of individuals are really desperate to understand about. My personal honest apologies for not expressing appreciation to earlier.
supreme clothing supreme clothing

golden goose outlet
24 November, 2021

I must show my thanks to you for rescuing me from this difficulty. After searching throughout the online world and finding notions which are not powerful, I believed my entire life was over. Being alive without the presence of solutions to the problems you have fixed by way of your entire article content is a critical case, as well as ones which could have negatively affected my career if I had not come across your blog post. Your main expertise and kindness in maneuvering every part was very useful. I’m not sure what I would have done if I hadn’t come upon such a step like this. It’s possible to at this time look forward to my future. Thank you so much for this skilled and result oriented guide. I will not be reluctant to suggest your blog post to anyone who needs direction about this subject matter.
golden goose outlet golden goose outlet

curry 6 shoes
06 January, 2022

I truly wanted to make a quick comment in order to express gratitude to you for some of the unique recommendations you are writing on this site. My prolonged internet lookup has at the end been rewarded with professional points to share with my classmates and friends. I ‘d state that that many of us site visitors are undeniably fortunate to exist in a great website with many brilliant individuals with insightful suggestions. I feel somewhat fortunate to have encountered your entire website and look forward to tons of more brilliant times reading here. Thanks a lot again for everything.
curry 6 shoes curry 6 shoes

supreme clothing
07 January, 2022

I wish to express my admiration for your kind-heartedness supporting men and women that absolutely need assistance with this important content. Your special dedication to passing the solution along became extraordinarily insightful and has frequently encouraged women like me to get to their desired goals. Your own helpful guidelines entails much a person like me and somewhat more to my office workers. Many thanks; from each one of us.
supreme clothing supreme clothing

pg shoes
07 January, 2022

I am commenting to make you understand what a nice experience my friend’s daughter developed using the blog. She discovered such a lot of pieces, with the inclusion of what it’s like to possess an awesome giving mood to have folks without problems understand chosen tortuous topics. You undoubtedly did more than our own desires. Thanks for offering such effective, healthy, explanatory and in addition fun tips about that topic to Julie.
pg shoes pg shoes

golden goose outlet
07 January, 2022

I enjoy you because of all of the labor on this web site. My mother takes pleasure in conducting investigations and it’s obvious why. My spouse and i learn all relating to the compelling form you render efficient tricks by means of this web site and in addition cause response from some other people on that situation plus our favorite simple princess is now discovering a great deal. Enjoy the rest of the year. You are performing a great job.
golden goose outlet golden goose outlet

jordan shoes
07 January, 2022

Thanks a lot for giving everyone a very spectacular chance to check tips from this web site. It is usually so terrific plus packed with a good time for me and my office acquaintances to visit your site the equivalent of thrice a week to learn the fresh tips you have. Not to mention, I’m just usually fascinated for the good solutions served by you. Certain 2 facts in this post are certainly the finest we have all ever had.
jordan shoes jordan shoes

birkin bag
08 January, 2022

I needed to draft you that little note to be able to give many thanks the moment again for your personal fantastic thoughts you’ve featured on this website. It is simply incredibly open-handed of people like you to allow openly what a few people would have distributed as an ebook to help with making some profit for themselves, precisely considering that you could possibly have done it if you ever wanted. These ideas in addition worked to provide a easy way to be certain that someone else have a similar fervor really like my personal own to find out great deal more concerning this matter. I’m sure there are some more pleasurable occasions ahead for those who read through your blog.
birkin bag birkin bag

irving shoes
08 January, 2022

I precisely had to thank you very much once again. I do not know what I could possibly have gone through without the ideas shown by you about that problem. This was an absolute frightening problem in my view, however , understanding your skilled form you handled the issue took me to weep with joy. Now i am grateful for your guidance and thus expect you really know what a powerful job you are accomplishing instructing men and women through the use of your site. Probably you have never encountered any of us.
irving shoes irving shoes

lebron james shoes
08 January, 2022

I precisely needed to thank you very much once again. I am not sure the things that I could possibly have done in the absence of these creative concepts contributed by you concerning such a question. It was before a very frightening circumstance in my position, nevertheless understanding the very expert approach you processed that took me to jump over joy. I am thankful for your advice and then have high hopes you comprehend what an amazing job you have been carrying out instructing some other people via your blog post. Probably you have never come across all of us.
lebron james shoes lebron james shoes

supreme clothing
09 January, 2022

Thank you so much for providing individuals with an extremely terrific possiblity to read articles and blog posts from here. It’s always so great plus stuffed with amusement for me and my office mates to visit your blog minimum three times in one week to read through the newest guidance you have got. And of course, we’re certainly amazed with your tremendous suggestions you serve. Certain two areas on this page are absolutely the simplest we’ve ever had.
supreme clothing supreme clothing

curry shoes
09 January, 2022

Thank you a lot for providing individuals with such a nice possiblity to check tips from this web site. It’s always very terrific and jam-packed with a great time for me and my office friends to search your site at least 3 times every week to read the fresh guides you have. And definitely, we are certainly fascinated with all the awesome guidelines you serve. Selected 4 points in this posting are clearly the most effective we have all had.
curry shoes curry shoes

curry shoes
09 January, 2022

Thanks so much for providing individuals with a very marvellous opportunity to check tips from this site. It is usually so excellent and also full of a great time for me and my office co-workers to search your blog really thrice weekly to read the new tips you will have. And lastly, we are certainly amazed concerning the splendid tactics you give. Some 2 points in this post are truly the very best we’ve had.
curry shoes curry shoes

Previous Page   Next Page
Bond & Company Accepts These Credit Cards