For the years 2010 to 2013 the new law provides small employers with a 35% tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees,and the employees must have annual full-time equivalent wages that average no more than $50,000.

Of course there is a catch! Self-employed individuals, including partners and sole proprietors, two percent shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.

To accurately process your tax return and maximize your tax benefits, we will need employee health insurance costs, number of employees, and wage information split between owners, the owner�¢??s family, and employees.

Payroll Reporting and Compliance

The IRS will no longer accept coupon payments for payroll taxes in 2011 and will only accept electronic payments. If you are not already paying electronically, go to www.eftps.gov to register. Clients using our office for ongoing payroll support are already aware of this and are registered for the upcoming year.

Special W-2 reporting requirements exist for owners of corporations. Please provide us with the 2010 company paid cost of owner health insurance and personal mileage driven on company owned vehicles so that we can accurately prepare your W-2 forms.

Every year employees should complete Form W-4 to update personal information and to ensure that the correct federal tax is withheld from each paycheck. If we are providing ongoing payroll support for you then please provide us with a copy of each employee's updated W-4. A copy of form W-4 and additional payroll tax information can be found at http://www.robertmorriscpa.com/resources/payroll forms.

Informational Reporting

Subcontractor 1099 information reporting has become a hot topic. You are required to file a 1099 form for unincorporated subcontractors that you pay remuneration for services in excess of $600 during the calendar year. The IRS imposes penalties for noncompliance and Pennsylvania Labor and Industry can use the 1099 to help substantiate the subcontractor�¢??s status. We are happy to assist you with 1099 reporting. To do this, we need a completed form W-9 and amounts paid to each subcontractor.

Miscellaneous

Vehicle mileage - The standard mileage rate for the use of a car for business purposes is $0.50 per mile in 2010. 2011 rates are not available as of the date of this letter.

Section 179 expense - To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation. Under the old rules, taxpayers could generally expense up to $250,000 of qualifying property�¢??generally, machinery, equipment and software�¢??placed in service in during the tax year. This annual limit was reduced by the amount by which the cost of property placed in service exceeded $800,000. Under the Small Business Jobs Act, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment limit to $2,000,000. The Small Business Jobs Act also makes certain real property eligible for expensing. Thus, for property placed in service in any tax year beginning in 2010 or 2011, the $500,000 amount can include up to $250,000 of qualified leasehold improvement, restaurant and retail improvement property.

Extension of 50% bonus first-year depreciation - Before the Small Business Jobs Act, Congress already allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property placed in service in 2008 or 2009 by permitting the first-year write-off of 50% of the cost. The Small Business Jobs Act extends the first-year 50% write-off to apply to qualifying property placed in service in 2010.

Please email us at info@robertmorriscpa.com if you wish to receive future correspondence from our office electronically.

We hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call us or visit our website.

Very truly yours,

Robert W. Morris & Company, PC