Tax Bytes

Labor Law Change- LAW ON HOLD



Effective December 1, 2016 new regulations will change the way many businesses pay overtime to their employees. If you require or PERMIT employees to work overtime, you may fall under these new rules.

Businesses affected: Businesses with gross revenues of $ 500,000 or more per year are covered under this new rule and ALL businesses (regardless of revenue levels) who are hospitals, businesses providing medical or nursing care for residents, schools (public and private) and public agencies.

Employees covered: Employees who are paid hourly have always been covered by overtime pay rules and this new rule does not change this. Employees added to overtime pay regulations under this new rule include certain salaried workers who were “exempt” from overtime pay under the old rules.

Overtime pay requirements: Salaried employees who earn $ 47,476 per year or less must be paid overtime for hours worked in excess of 40 per week. In computing this salary level, you may only count up to 10% of incentive pay (such as commissions) or non-discretionary bonuses toward this annual total. These incentives and bonuses must be paid at least quarterly to be considered toward the salary total. You may NOT use compensatory (“comp time”) to satisfy the overtime pay requirements.

Implementing the new rules: If you find that some of your employees fall under these new rules, you have several options:

  1. If an employee’s salary is very close to the new threshold, you could give the worker a raise that puts them above the $ 47,476 threshold.
  2. You can prohibit salaried employees from working overtime hours.
  3. You can pay overtime to all employees who fall under the new rules. If you decide to pay overtime to previously exempt employees, you do not have to convert them to an hourly pay scale or ask them to “punch a time clock”. You just track their normal hours worked per week and have them report to you any excess hours worked. In order to compute the correct time and a half rate to use for the payment of overtime, you must divide their annual salary by 52 weeks to determine their weekly pay. Then divide that number by 40 to determine their effective hourly pay. Then multiply the hourly rate by 1.5 to get the overtime rate.

This is a brief overview of the new rules. For complete text of the overtime rules you can go to the US Department of Labor website (



Need to consider some important issues before the close of the year. You do not want to end up with a “surprise” at filing time……….


It is extremely important that shareholders who work in their business be paid a salary before the end of the year, if the company has profits. IRS is getting more aggressive in cracking down on S-Corporations who pay little or no salary to their shareholder(s) and the shareholder is taking dividends or draws out of the business. There is no set amount that you are required to pay, only what is “reasonable”. In considering what is reasonable, first look at the business. If your profit is low, then your salary can be low because it would not be prudent to pay a large salary if the business can not afford it. If your profit is high, your salary needs to be somewhere in a range of what you would pay an outside employee to do the tasks that you do for the business. The trend at IRS is for them to reclassify profit as wages at least up to the social security wage base so they can collect that additional tax. IRS also looks at what you have drawn out to determine what might be a reasonable salary, so have a logical reason for the salary you pay. If the shareholder is the ONLY employee of the corporation it is much more difficult to refute IRS’s claim that your profit should all be payroll.


If your company pays for shareholders medical insurance it is important that you add the amount paid for the shareholder insurance to your W-2 income before the end of the year. If you have a payroll service, be sure to notify them of the amount to add before the last payroll run of the year (to avoid having to pay for a re-run). If you do your own payroll, the medical insurance amount is added to box 1 wages on the W-2 (and state wages) but is NOT added to your social security or medicare wages. Keep in mind that your wages must be at least as much as the medical insurance you are adding in to maximize your deduction.


We frequently see situations where the shareholder of an S-Corporation has taken dividends in excess of profits for the current year, which ends up as additional taxable income if the shareholder has no basis left in the corporation. Basis is a complicated issue, however, in a nutshell, it is the amount that you have invested in or loaned to the company that has not been previously taken back out or deducted. Your basis in loans made to the corporation is not necessarily the balance that the company owes you! You could have eroded the basis of your loan in a previous year and then subsequent repayments by the company are taxable. The easiest way to keep track of this is to be sure that you do not draw out more than your current year profits each year. Take a look at your profit as the year progresses and adjust accordingly. Remember that you may make some tax moves, such as writing off equipment purchases, that may reduce your profit at year end and don’t show up on your interim P & L statement.

Scams and Identity Theft

Stop Scams & Identity thieves

identit_theftProtect yourself from Scammers

While we are gearing up for another tax season, so are scammers and identity thieves. One of the biggest scams going around during this time of year is scammers making unsolicited calls. Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They request the taxpayer give out personal and/or financial information to them to avoid arrest. They may also leave “urgent” callback requests through phone “robo-calls” or via phishing emails.



These callers try to scare their victims with threats.
Scammers use caller ID spoofing to hide their numbers.
Cons try new tricks all the time. If you have an uneasy feeling that something is wrong with the call or email- YOU ARE PROBABLY RIGHT. DO NOT GIVE THEM ANY OF YOUR INFORMATION.


The IRS will NOT:
• Call you if you owe taxes without first sending you a bill in the mail and assigning you      an agent.

• Demand that you pay taxes and not allow you to question or appeal the amount you        owe.

• Require that you pay your taxes a certain way such as with a prepaid debit card, pay        immediately on the spot.

• Ask for your credit or debit card numbers over the phone.identity_theft

• Ask for any personal information over the phone.

• Threaten to bring in police or other agencies to arrest you for not paying.

IF YOU KNOW YOU OWE TAX, you can call

The IRS at 800-829-1040 and IRS workers can help you.

For more information, visit “Tax Scams and Consumer Alerts” (

2017 Year End Payroll Checklist

2017 year end Checklist by Task

Review and update employee info

□ Run reports for year end (Employee details, Payroll details, wage and tax summary).

□ Confirm employee social security numbers, legal name, and current address.

□ Make sure all employee paychecks have been reported
(Handwritten, termination, commission, and bonus checks).

□ Verify employee wage and benefits are correct.

□ Review sick and vacation policy settings; confirm sick and vacation hours used.

Run final payroll of 2017

□ Include final payments for fringe benefits, commissions, and contributions.

□ S-Corp owners- add medical insurance to W-2

Order year-end supplies

□ Order W-2 perforated forms and envelopes (if not printing out of your software).

□ Order 2018 labor law compliance posters.

Prepare for the 2018 tax year

□ Update state unemployment insurance (SUI) rates effective Jan 2018.

□ Review and update any federal or state deposit schedule changes.

□ Ask employees to review and update W-4 and state withholding forms.

Prepare and file payroll tax forms and payments

□ Jan 31, 2018: Last date to distribute employee W-2s.

□ Jan 31, 2018: Last date to file employees’ printed W-2 and W-3.

Before you file form 940: Review and record all state unemployment insurance (SUI) payments.

□ Jan 31, 2018: File other federal forms like 941 or 940

□ File state forms. Iwire is required for Oregon.