Payroll Withholding Issues

May 7, 2008

 Dear Client

 As the IRS reduces its’ own workload, to put more on you and I, problems can arise. We recently had a client who was recently assessed a substantial penalty for paying payroll taxes to the IRS directly with a check! We had another situation where the IRS assessed a penalty when the clients EFTPS tax deposit did not go through because the bank routing number was change. No notice was given to the client that the tax deposit did not go through and the client did not find out about it until the bank account was reconciled. Another client recently found it difficult and cumbersome to make a deposit for withholding on a pension distribution.

 The IRS favors the EFTPS method for tax deposits. (To make a tax deposit with the EFTPS you must be enrolled. You may enroll at the following website: https://www.eftps.gov/eftps/) As a result, they seem to make it difficult to make payments with checks. In order to make a payment with a check, you must have IRS form 8109. The problem is, you cannot download this form from the IRS website. You must order it from the IRS. The problem with this is that if you need to make a tax deposit, it will take up to 6 weeks to get the needed forms from the IRS.

 As a precautionary measure, we are recommending clients obtain “backup” 8109 forms from the IRS so that in the event of a needed tax deposit, they will be able to make one. To do so, call the IRS at 1-800-829-4933. Be prepared to give them your employer ID, company name and address, as well as your own name and number where you can be reached at. Order a few blank 8109s in addition to the custom ones that the IRS will send you. These may come in handy if you have to make a tax deposit for a related entity (such as a pension plan)

 Another important development that we would like to call your attention to is the mandatory deposit requirements for 401-K withholdings. The Department of Labor has released a proposed rule that requires participant contributions to be deposited into the pan within seven business days of withholding from employee pay. Since it is probable that this proposed rule will become final, we recommend immediate compliance. We recommend that at the end of each payroll, make your tax deposits and 401-K deposits. This is simple to remember and will keep you out of trouble!

 Finally, we want to call your attention to the fact that the maximum 401-K limit for 2008 remains at $15,500, and the “catch up” limit at $5,000. The maximum compensation to be considered for employer contributions for 2008 is $230,000, up from  the 2007 limit of $225,000.