As we speak, new legislation is rolling out that will have a major affect on corporate tax compliance regulations this year and in 2014.
Businesses of all sizes need to be aware of the impending new regulations to ensure they’re in line with federal, state, and international (yes, even international) tax codes. Small- to medium-sized businesses will certainly be affected, as well big companies, due in large part to high head counts. The PPACA, FATCA, and other provisions are going to affect your bottom line sooner rather than later. Read on to learn how:
PPACA: Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act (PPACA) has been rolling out piecemeal since 2010. However, many of the most significant changes are coming out this year and next year. Starting in 2014, businesses with at least 50 full-time-equivalent workers will be required to provide health insurance options and, if you don’t offer health insurance, you will be fined—heavily. A full-time employee is someone who works at least 130 hours per month; the fine is $2,000 times the total number of full-time-equivalent workers minus 30. For instance, if your company employs 8,000 full-time workers, your fine would be $2,000 x 7,970, or almost $16 million. That’s a lot of cash.
However, very large companies can employ a huge number of part-time and seasonal workers; this is where things get a little (more) confusing. If that’s the case, you’ll need to add up the hours to come to a full-time equivalency. Every 120 hours of combined work by part-time and seasonal employees amounts to one full-time worker for the purpose of figuring the size of the company, as well as figuring a fine for non-compliance.
While coverage for full-time and part-time employees varies, there are always additional options to ease the burden of cost. For example, there are tax credits designed to help businesses pay for the cost of providing coverage, so make sure that you understand what you, and in turn your organization, are eligible for–it could save you a bundle.
Last but least, be aware that starting with the 2013 W-2 forms, companies that issue more than 250 W-2s have to report the cost of employer-sponsored health coverage on said forms. This adds another layer to the paperwork and needs to be accounted for during the planning process.
FATCA: Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (FATCA) is designed to help the IRS recapture some of its revenue and close a reported $450 billion gap between what the government expects in revenues, and what it actually ends up with.
All businesses need to be in compliance with reporting, since the government is also entering into agreements with foreign countries to share information on any accounts or holdings. Every single US taxpayer, including foreign entities in which US taxpayers have a sizable share of ownership, will be reported to the IRS by those financial institutions. As such, all affiliated parties must must report their foreign accounts to the IRS using Form 8938.
Multinational companies with headquarters in other countries are also part of the mix. At a recent summit for G8 leaders, the practices of large companies like Apple and Google were discussed. A crackdown on companies that try to move their revenues to countries with lower taxes is likely coming, and big corporations should be aware that just having locations and headquarters (especially if it is mostly “on paper”) in countries that are a little friendlier on taxes isn’t enough to protect them. Here’s a perfect example: the recent conviction of major fashion house Dolce & Gabbana.
If you are an accounting firm, you need to ask your international clients if they are in compliance with FATCA, and if they are prepared to disclose their accounts. FATCA has provisions for those who have not reported foreign accounts in the past to do so now, without the threat of criminal penalty. If companies do not disclose, and the IRS finds out about the account, there is a possibility of a 40% penalty and criminal prosecution. Businesses that comply, disclose their own accounts, pay a fine, and then pay what they owe, can avoid heftier penalties and jail time.
Other Tax Compliance Issues
- Legislation in the works at federal and state levels are looking into worker misclassification. If a business is classifying a worker as a 1099 worker, when technically that worker should be issued a W-2, there is a good chance that swift action will be taken by the government. Make sure that workers are properly classified to avoid the penalties that come with misclassification.
- Form 1099-K (a form filled out by retailers who accept online payments processed by credit cards and/or third party processors, such as Paypal) matching is another issue that some business have to face moving forward. The IRS has said that it will begin 1099-K matching late this year, and that means many corporations need to adjust their accounting methods and keep better records. Even though businesses won’t be required to reconcile their 1099-K forms on their tax returns, if an audit looms, good records are a must.
With the new tax compliance regulations coming out in 2013 for the 2014 tax season, it’s essential to do your due diligence. All businesses, small and large, should prepare by checking records, and even hiring accountants to ensure that they are up to date on compliance.