The North Carolina 2010-2011 budget, signed into law by Governor Bev Perdue on June 30, 2010, makes several changes to tax code, particularly as it relates to small business. These changes include both new and expanded tax credit measures, as well as changes in Internal Revenue Code (IRC) compliance, combined returns, sales and use tax, admissions tax, franchise tax, tax penalties, and the deadline for filing annual reports.

Tax Credits
Temporary unemployment insurance refundable tax credit
Small businesses making a contribution to the State Unemployment Insurance Fund can claim a tax credit for 25 percent of contributions. This credit applies to contributions made to wages paid for employment in North Carolina. Contributions must be made in tax years 2010 and 2011. A business with gross receipts less than $1 million qualifies as a “small business” for the purposes of this credit.

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The IRS recently released guidance on the 10 percent excise tax on indoor tanning services levied by the Health Care Act. IR 2010-073 provides detail on the method of payment, and certain exceptions for the excise tax.

Payment
Generally, the tax will be collected from patrons at the time of purchase and paid quarterly to the IRS. Businesses should attached the payment with their Form 720 Quarterly Federal Excise Tax Return.

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Your business may be eligible for the new Small Business Health Care Tax Credit. The credit, which was part of The Patient Protection and Affordable Care Act, is retroactive to tax years beginning in 2010 and is, therefore, available for the full calendar year of 2010 (for calendar year taxpayers).

Designed to encourage eligible small employers to offer health insurance coverage to their employees, the non-refundable credit is available to small employers that pay at least half the cost of single coverage for their employees.

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The Hiring Incentives to Restore Employment (HIRE) Act provides qualified small businesses with a new tax credit for retaining certain qualified employees. This provision is intended to encourage businesses and tax-exempt entities to hire and retain employees, and is generally applicable for 2010.

CREDIT AVAILABLE
For each retained worker, a qualified employer’s general business credit is increased by the lesser of:

• $1,000, or
• 6.2% of the retained worker’s wages during a 52-week consecutive period

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The Hiring Incentives to Restore Employment (HIRE) Act provides a Payroll Tax Holiday for small businesses that hire and retain previously unemployed workers. This provision applies to wages paid beginning after March 18, 2010, and ending on December 31, 2010.

Qualified businesses are forgiven their 6.2 percent share of the “old age, survivors, and disability insurance (OASDI)” component of Social Security payroll taxes for qualified employees performing services in a trade or business.
A qualified individual is any individual who:

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• begins work for a qualified employer after February 3, 2010, and before January 1, 2011;

If your business has a foreign bank account or other foreign financial interest, you need to make certain that you comply with reporting rules because the penalties for noncompliance can be substantial.

U.S. persons with a financial interest in or signature authority over a foreign financial account are generally required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”) with the Department of the Treasury. The FBAR is due by June 30 for a foreign account in which the aggregate value exceeded $10,000 at any time during the previous calendar year.

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If you receive a postcard from the Internal Revenue Service (IRS) this week, you are not alone. The IRS is currently in the process of mailing postcards to over 4 million small businesses and tax-exempt organizations to raise employer awareness of the benefits now available through the new small business health care tax credit.

Included in the Patient Protection and Affordable Care Act, the credit is one of the first of several new health care reform provisions to go into effect. Available for 2010, the credit encourages small businesses and tax-exempt organizations to offer health insurance coverage for the first time or maintain current coverage.

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Included in the Patient Protection and Affordable Care Act is a tax credit designed to encourage small businesses to provide health coverage to their employees. Effective for tax years beginning in 2010, the credit equals a percentage of the employer contribution to employee health care plans, provided that coverage equals at least half of the overall plan. The credit will increase for small businesses when state-run marketplaces come into effect in 2014.

“This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees,” said IRS Commissioner Doug Shulman. “We urge small businesses and tax-exempt employers to look closely at this important tax break — which is already effective — to see if they qualify.”

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Last week, the IRS released the forms necessary for employers to claim the special payroll tax exemption provided by the Hiring Incentives to Restore Employment (HIRE) Act. The forms released include a new Form W-11, HIRE Act Employee Affidavit, and a revised Form 941, Employer’s Quarterly Federal Tax Return. The Form 941 is currently in draft form with the final form and instructions expected next month.

Form W-11
In order to claim the “Hire Now Tax Cut” benefits, employers must obtain a statement from each eligible new hire, certifying under penalties of perjury, that he or she was unemployed during the 60 days before beginning work or, alternatively, worked a total of less than 40 hours for anyone during the 60-day period. Employers can use Form W-11 to meet this requirement.

That new hire cannot replace an employee unless that employee’s departure was either voluntarily or for cause. Relatives of the employer, or shareholders owning more than 50 percent of the business, are not eligible.

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The recent enactment of the Patient Protection and Affordable Care Act of 2010, in combination with the Health Care and Education Tax Credits Reconciliation Act of 2010 (collectively known as the “Health Care Act” or the “Act”), will significantly change the nation’s health care landscape and impact small businesses in a number of ways.

Given the scope of this landmark legislation, this short summary is by no means a comprehensive review of the new law. As your tax professionals at CB&H continue to study the legislation, we will continue to keep you informed and up-to-date regarding how the Health Care Act will affect you and your business.

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