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MEDICAL PRACTICES

New NJ Program Offers Siestas instead of Layoffs

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Alternative to Slow-Period Layoffs:

NJ Program Helps Maintain Your Workforce 

Businesses that are thinking about laying off employees because of a slowdown in activity—but fear losing talented labor or getting socked with an increased Unemployment Insurance (UI) tax rate—may have an alternative, thanks to an innovative state program. Under the “shared-work” legislation a company that has to slice payroll expense by significantly cutting employees’ work hours may be able to have the NJ Department of Labor partially offset workers’ reduced pay by giving them “short-time” unemployment benefits. 

Employers may find that their UI tax rate is lower under the “short-time” approach, compared to having laid-off employees collect full unemployment. In addition to getting at least some of their pay, employees will be able to keep their health insurance and other benefits while they work fewer hours.

Here’s the fine print

For each company, the state may approve the program for a period no longer than one year and may, upon employer request, renew the approval of the program for additional periods.  Of course, there are certain filing and other requirements. For one thing, the business needs to complete a formal Shared-Work Plan Application and submit it to the New Jersey Department of Labor, Shared-Work Approval Unit (the application is available at NJ Department of Labor, Shared-Work Application).

 The business must have at least 10 employees; and the “affected unit” of the company—a specified plant or other facility, department, shift or other definable unit, must be composed of two or more employees.  Among other requirements, the reduction in weekly work hours of the affected employees must be not less than 10% and not more than 60% of the “usual weekly hours of work”.

 Not everyone’s eligible

Some kinds of employment—like subsidized seasonal employment during off-season, and employment that is temporary or intermittent on an ongoing basis—are not eligible for this program. 

Our recommendation

This program could cut payroll expenses for some businesses while enabling them to retain valued employees during a time of economic disruption. Still, disclosure, documentation, UI costs and other issues should be considered. Please contact one of our CPAs to see if this program is suitable for you.

                                     

NJ Employers-Reduce Your Unemployment Tax Rates-August Deadline

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Did you check your NJ SUI rates?
In July all New Jersey employers received a Notice of Employer Contribution Rates. This is not a bill, but rather a summary of the manner

in which the NJ Department of Labor calculates your employer contribution rate for unemployment and  disability. This form enables you

to determine whether a voluntary  contribution would save you money in the subsequent year.

Can I reduce the NJ SUI rate?
A voluntary contribution increases the reserve balance and may reduce your contribution rate. Each employer should calculate the amount

of the voluntary contribution required to reduce the rate. The required voluntary payment should be compared to the savings realized from a lower rate.

The unemployment expense is a substantial component of the labor cost of staffing agencies. You should give it careful attention. If you wish to make a

voluntary contribution to your reserve balance you have 30 days from the date of your notice to do so. We recommend that you verify all the NJ DOL

calculations including the amount of the employer contributions and the benefits charged to your account. Report any discrepancies to the NJ Dept. of Labor.

By making a voluntary payment, employers may reduce the NJ SUI rate for the coming year. Please be aware that this payment increases your reserve

balance and helps reduce the NJ SUI rate in future years as well.

Avoid NJ DOL Audits- S-Corp Owners Should Take Reasonable Compensation

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Wages vs. S Corp. Income

In an S-Corporation, a popular choice of tax entity among businesses, an owner who works for the company is required to take wages. How much of the company’s income is classified as wages versus S Corp. income (reported to the owner on Form K-1) is up to the owner. The net income will be taxed regardless of how it’s classified. The big difference lies in federal employment taxes, which are not paid on K-1 income. Another consideration is that K-1 income is exempt from the new 3.8% Medicare tax. So it would seem like a no brainer to take the lowest salary possible, right? Think again. There are significant downsides to consider before taking an unreasonably low compensation.

Risk of IRS Penalties

Let us assume Sam Success worked full-time as the manager of his staffing agency, which has net income of $200,000 this year. If he decides to avoid payroll taxes and classify $20,000 as wages and $180,000 as K-1 income, the IRS will probably notice. Using industry averages and other factors, it will argue that the compensation was unreasonable and will therefore impose steep penalties on top of the payroll taxes owed for the difference between the unreasonable $20,000 and what they determined is reasonable compensation.

Avoid NJ DOL Audits

Even if the IRS doesn’t take notice, the State of New Jersey has taken an aggressive stance with regard to unreasonable compensation. New Jersey is looking to collect state unemployment insurance (SUI), and if Sam Success’ salary is less than the SUI threshold ($31,500 in 2014) it will likely be scrutinized.  The number of such NJ DOL audits is on the increase. Moreover, New Jersey will inform the IRS after taking its share.

Less Disability Coverage

If Sam Success was injured by an insured party, he wouldn’t be able to argue that as manager of a staffing agency he deserves at least $100,000 for lost wages. Since he only classified $20,000 as wages, he cannot claim that his lost wages are greater.

Goodbye Social Security and Pension Benefits

The amount one receives from Social Security depends on one’s wage income or other income subject to Social Security tax. By minimizing his wages, Sam is also minimizing his potential benefits. In addition the company’s contribution to his pension is based on his wages. Lower wages equals lower pension benefits.

Keep it Reasonable

When it comes to determining wages from your S-Corporation, reasonable compensation is the way to go. Your tax professional can advise you in determining just the right amount to classify as wages in order to maximize the tax advantages, while avoiding the aforementioned pitfalls.  

Upcoming UA Seminar: Do You Know the Real Value of Your Medical Practice?

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You probably think you already know the value of your business. After all, who would know it better than the owner? The reality is, however, that there are several factors that impact the value that many business owners are unaware of.  This topic will be addressed at the upcoming complimentary U&A seminar, the first installment in a four part series tailored to medical and healthcare professionals. Issues covered will include:

  • What elements and factors enter into the value of your healthcare practice?
  • How can you increase and maintain the value of your medical practice?
  • How and why CPT codes and RVUs impact value
  • Value for Divorce vs. Value for Buy-Ins/Buy Outs
  • Starker I and II: a brief overview of these fundamental laws 

 The seminar will take place in our office (1581 Route 27, Edison, NJ) on Tuesday morning, Dec. 10th, at 8:30 am to 10:00 am and will be presented by Jeffrey D. Urbach CPA/ABV (Accredited in Business Valuations). Jeff, who has co-authored Continuing Professional Education (CPE) courses in the field of business valuation, will explain the benefits of understanding your practice’s value. He will also highlight the various factors that can impact its value.

For more information, click here: Medical Seminar Flyer

 

 

Tax Planning Tips for the new 3.8% Net Investment Income Surtax

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With a new 3.8% tax on “unearned” income kicking in in 2013, it’s very difficult to limit your tax to just “ordinary” income tax. If your income is earned, you pay 15.3% Self-Employment (Social Security) tax. If your income is un-earned, you now have the new 3.8% Net Investment Income (NII) tax to pay.

Profits from an S corporation are just about the only income that escapes Self-Employment tax as well as the 3.8% NII tax. The S corporation is now an even more attractive form of entity to minimize taxes for owners of certain businesses, depending upon the facts and circumstances. After paying reasonable compensation to the owners, the remainder of the profits flow through to owner’s personal tax returns subject only to income tax, not Self-Employment or NII tax.

 There are several areas you can address to possibly reduce your overall tax. Is your “Reasonable Compensation” unreasonably high? If it is, you may be paying Social Security tax on that compensation unnecessarily. Even if you are over the Social Security wage limit ($113,700 in 2013) you still continue to pay the Medicare tax of 2.9% coupled with the new 0.9% Medicare surcharge for high-wage earnings totaling 3.8%. Find out what is the standard of executive compensation for companies of your size, industry niche and profitability. [Read more…] about Tax Planning Tips for the new 3.8% Net Investment Income Surtax

NJ Division of Taxation Warns of Solicitations Mailed to Businesses

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Many NJ businesses have recently received a solicitation concerning “Annual Corporate Records Form”. The mailing, which has an official appearance, solicits a fee of $125 in return for the recording of corporate shareholders, directors and officers. The Division of Revenue is alerting all New Jersey businesses that there is no requirement to file this form State of New Jersey, and the sender isn’t affiliated with the State.

New Jersey businesses that receive the mailing may report it by:

  1. Filing a complaint with the New Jersey Division of Consumer Affairs, PO Box 45025, Newark, NJ 07101 (complaint forms can be downloaded at http://www.nj.gov/oag/ca/complaint/ocp.pdf)
  2. Contacting the United States Postal Inspections Service to report mail fraud at (877) 876-2455 or http://postalinspectors.uspis.gov/forms/MailFraudComplaint.aspx.