Compliance February 23, 2012

Payroll Tax Cut Extended, IRS Issues Revised Form

 

The Internal Revenue Service (IRS) released revised Form 941, enabling employers to properly report the newly extended payroll tax cut.

 

 

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Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted on Wednesday, workers will continue to pay a lower Social Security tax withholding rate of 4.2%, which is two percent less than the 6.2% rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011 (see “Senate and House Agree on Payroll Tax Cut for 2012”). 

According to the IRS, as before, the lower rate will have no effect on workers’ future Social Security benefits.  The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.  

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Self-employed individuals will also benefit from a comparable rate reduction in the Social Security portion of the self-employment tax from 12.4% to 10.4%. For 2012, the Social Security tax applies to the first $110,100 of wages and net self-employment income received by an individual.  

The new law also repeals the 2% recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now-repealed recapture tax does not apply (see “Payroll Tax Cut Bill Includes Recapture Tax”).  

The IRS said it will issue additional guidance, as needed, to implement the newly extended payroll tax cut, and any further updates will be posted on IRS.gov.  

The revised Form 941 is available at http://www.irs.gov/pub/irs-pdf/f941.pdf.

 

Compliance February 23, 2012

Defunct Company Ordered to Restore Retirement Plan Assets

The U.S. Department of Labor (DoL) obtained a summary judgment ordering Compass Capital Partners Ltd. and owner Harris M. DeWese to restore $661,206 to the defunct West Chester, Pennsylvania company’s retirement plan.  
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The judgment resolves a lawsuit filed by the DoL in August 2011 that alleged violations of the Employee Retirement Income Security Act (ERISA).

The suit resulted from an investigation by the department’s Employee Benefits Security Administration (EBSA), which found that DeWese withdrew funds from the plan eight times from October 2006 to October 2007 and deposited them in his personal account and a Compass Capital Partners bank account. DeWese then used the plan funds to pay the company’s operating expenses and also transferred a portion of them to Tampa, Flordia-based Hillsboro Printing, a company in which DeWese was a shareholder. Compass Capital Partners ceased operations, and the plan was unable to pay benefits to retired participants as a result of DeWese’s actions.

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“These actions show a flagrant breach of fiduciary responsibility,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “We will continue to hold plan sponsors and other responsible parties accountable when they fall short of their legal obligation to protect the hard-earned savings of plan participants.”

Filed in the U.S. District Court for the Eastern District of Pennsylvania, the judgment removes DeWese and Compass as plan fiduciaries and permanently enjoins them from serving as fiduciaries for any ERISA-covered plan. It also appoints Metro Benefits Inc. of Pittsburgh as the independent fiduciary authorized to terminate the plan.

 

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