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Small Biz Bill Loaded With Payroll Items

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in Human Resources,Office Management

The Small Business Jobs Act of 2010 (P.L. 111-240), which encourages small-business lending, also contains payroll provisions. Here's the rundown.


Employer-provided cell phones. Previously, the tax code classified cell phones as listed property, which meant that employees had to account, in agonizing detail, for their personal and business use (this included text messages and e-mails, too). The law removes cell phones and similar telecommunications equipment (smart phones) from the listed-property category, beginning with the 2010 tax year. Upshot: You may treat employer-provided cell phones/smart phones as a working condition fringe benefit, provided employees substantiate their business and personal use under the regular accountable plan rules. Red flag: Employees' personal use of employer-provided cell phones remains taxable, unless personal use can be considered a de minimis fringe benefit.


Information return penalties. Penalties for failing to file correct information returns increase, beginning with forms filed next year. Penalties apply per form and are tiered, depending on when correct forms are filed.

  • The penalty for filing correct forms within 30 days after the due date increases to $30, from $15. The calendar year maximums increase to $250,000, from $75,000, and to $75,000, from $25,000, for small employers.

  • The penalty for filing correct forms after the 30-day deadline, but by August 1, increases to $60, from $30. The calendar year maximums increase to $500,000, from $150,000, and to $200,000, from $50,000, for small employers.

  • The penalty for filing correct forms after August 1 increases to $100, from $50. The calendar year maximums increase to $1.5 million, from $250,000, and to $500,000, from $100,000, for small employers.

Penalties for failing to provide payees with statements are revised to provide tiers and caps identical to the failure-to-file penalties. The minimum penalty for a failure to file due to the intentional disregard of the filing requirements increases to $250, from $100. Penalties will be adjusted every five years for inflation, beginning in 2013.


Roth rollovers. Effective immediately, 401(k) plans that already have a Roth feature may accept direct rollovers of employees' pre-tax contributions (e.g., in-service distributions, distributions made prior to retirement age, and eligible rollover distributions). In keeping with the after-tax nature of Roth accounts, employees must include these amounts in income, but those who roll over pre-tax amounts in 2010 may elect to pay the income taxes in 2011 and 2012. Plans must be amended to reflect this feature.


Section 179 deduction. The law increases the Section 179 deduction for tax years 2010 and 2011. Small businesses can now deduct up to $500,000 of the cost of machinery, equipment, vehicles, furniture, computers, and software that's placed in service this year and next. The $500,000 deduction limit is phased out for property costing more than $2 million. Further, you can't deduct more than the company's taxable income in a taxable year. Amounts you can't deduct this year can be carried forward into succeeding years, until the deduction is used up. Idea: If you want new payroll software, now may be the time to make your proposal to upper management.

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