Posted on January 26, 2009

Economic Stimulus Package

The American Recovery and Reinvestment Act (ARRA), the financial stimulus law signed by President Barack Obama on February 17, 2009, includes significant payroll changes for employers. Paycor is ready to help you comply with the new ARRA guidelines.

Making Work Pay Employee Tax Credit

Work Pay provision of the ARRA provides a refundable tax credit for 2009 and 2010 of up to $400 per year for working individual taxpayers and $800 per year for married taxpayers filing joint returns. The tax credit, calculated at 6.2% of earned income, will phase out for taxpayers with adjusted gross income in excess of $75,000 for individuals or $150,000 for married couples filing jointly.

What does this mean to you?
This tax credit is available for your employees through revised income tax withholding tables designed to reduce withholding so that the full amount of the credit will be implemented during the remainder of 2009. This means your employees may have less federal income tax withheld, resulting in an increase in take-home pay.

How is Paycor responding to help you?
This withholding change is automatic for all employees as Paycor has already updated your global tax tables effective March 2, 2009. This update also includes the necessary changes to the Advanced Earned Income Credit (EIC) payment tables.

What do you need to report to Paycor?
This withholding change is automatic so you do not need a new W-4 for your employees.

COBRA Premium Subsidy
The COBRA subsidy provision of the ARRA provides a 65% federal government subsidy of COBRA continuation coverage premiums for involuntarily terminated employees. While this subsidy is effective March 1, 2009, employees may be eligible if involuntarily terminated between September 1, 2008 and December 31, 2009.

What does this mean to you?
If involuntarily terminated employees elect to participate in COBRA and pay 35% of the COBRA premium you are now required to pay the remaining 65. You will be reimbursed for the full 65 as a credit against your federal payroll taxes (federal income tax deposits). This provision requires that you inform all eligible employees of the 65% subsidy even if they previously rejected COBRA coverage at the time of termination. Paycor recommends that you consult your attorney or 3rd party COBRA administrator if you have specific questions about which employees are eligible or your additional responsibilities within this provision.

How is Paycor responding to help you?
Paycor will apply your COBRA subsidy credit to your federal payroll tax (941) deposits. You will observe this credit on your Cash Requirement report and Paycor will reduce your impound up to the amount of the 941 liability.

What do you need to report to Paycor?
You can now enter your own COBRA premiums within your payroll application. Simply add a manual check for the terminated employee and enter the 65% premium that you already paid under the tax code ZZCOB. Your payroll specialist can help you set up the ZZCOB tax code to get you started.

Clients who phone or fax your payroll can continue to provide your payroll specialist with a list of eligible employees and the amounts of the 65% COBRA premium you already paid for which you would like to apply for credit. These credits will be entered with your regularly scheduled payroll run. Click here to download a COBRA Credit Worksheet to help you organize your information to submit to your Paycor Payroll Specialist.

Paycor recommends that you maintain proper records as defined by the IRS, including receipts from your terminated employees with the date and amounts of their 35% share of the premium payment made. Paycor does not need copies of this documentation. To learn more about the IRS record keeping requirements please go to www.irs.gov and search "COBRA records".

Paycor continues to work closely with the IRS and other industry associations to stay informed of the latest developments within the ARRA and other proposed legislation. You have our assurance that our systems will be updated to ensure your compliance anytime new payroll and tax changes are introduced. We also intend to keep you informed as changes are announced or become effective. To help you stay current on this topic, Paycor will always have the latest updates available here.

If you have additional questions, please email ARRAquestions@paycor.com or contact your Payroll Specialist.