Background Check Laws

As a small business owner, you may be concerned about whether you are required to conduct background checks on prospective or current employers, or whether you are allowed to do so even if you are not required to do so. Understanding when a background check is required, when one is allowed, and what information can be used as the result of a background check is crucial for a small business owner in order to avoid fines, penalties and even litigation.
A background check may be required by federal or state law. Government employers often conduct background checks as a matter of course. Individual state laws also frequently require backgrounds checks when an employee will be working around certain "vulnerable" individuals such as children, elderly or the disabled. Failure to comply with state or federal laws that require a background check could subject you, as the employer, to fines and penalties or may open you up to a lawsuit on the basis of negligent hiring in the event someone is ultimately injured by your employee. Be sure to check your individual state laws with regard to background checks.
Many businesses are choosing to conduct background checks as a precautionary measure, even when not required to do so. While no measure is fool-proof for preventing fraud, tortious conduct or other libelous actions by an employee, a background check can offer some reassurance as well as provide a defense in the event something does go wrong and you are sued for damages.
What can, and cannot, be reported on a background check is extremely important to understand as a small business owner. Because a background check is considered a "consumer report", the Fair Credit Reporting Act (FCRA) sets the federal standards for what can be included; however, state laws may set further limitations. In general, anything that is considered "public record" may be included in a background check including things such as criminal convictions, bankruptcy filings and workers' compensation claims.
To further complicate matters, however, some things may be included on a background check but cannot be used against the employee when making a hiring decision. A bankruptcy, for example, may be included on a background check; however, you may not, as a general rule, discriminate against a prospective employee on the basis of the bankruptcy. Likewise, although workers' compensation claims may be included in a background check, the fact that an employee filed a claim can only be considered with regard to whether the reason for the claim may interfere with the prospective employee's ability to perform the job.

Federal Income Tax Return Filed Incorrectly: What Should I Do?

Because the IRS's tax laws are complicated, it is possible to mistake a mistake -- whether minor or major -- when preparing your federal tax return. In fact, the IRS encounters thousands every year. If you have already sent in your federal tax return, but realize you made an error, you need to amend the return. In light of this, the IRS makes this as easy as possible by providing you with printable forms that give you detailed instructions on how to amend previous filed incorrect federal tax return.
Steps to File an Amended Return
1. Obtain and print Form 1040X, which is titled "Amended US Individual Income Tax Return." From the IRS website. Form 1040X should be used if you originally filed forms 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.
2. Write the amending return year at the top of the form, complete your corrections on the form, and sign it at the bottom. The Form 1040X makes it easy to amend your return by listing step-by-step instructions on how to enter your corrections. Double-check that the amended return is 100% correct before signing it and preparing it to be sent.
3. Mail the completed and signed form to the address listed on the Form 1040X. If you are amending more than one tax return, you should fill out and send two separate forms and envelopes.
If you send in your amended tax return quickly, or shortly after the original return was sent, you may have a chance to get your return processed in a timely manner. However, you should expect a minor delay in your tax refund while the IRS verifies the old return versus the amended return. The amended refund form gives you the chance to make your corrections and receive the appropriate refund. In addition, if your federal income tax return had a mistake, your state tax liability may be affected.

What is a High Deductible HRA?

The acronym "HRA" stands for Health Reimbursement Arrangement, which is a defined contribution plan often tied to a high deductible insurance policy. HRAs allow employers to reimburse their employees for a portion of their medical costs using tax deductible funds.

 

When employees are insured under a high deductible policy, each employee must pay more money out-of-pocket for medical costs before the insurance company will begin to pay its portion. Employers typically choose high deductible policies when they can't afford to offer more coverage, but the extra cost associated with the deductible is often burdensome for employees.

 

To reduce the financial strain on employees, employers sometimes open HRAs in addition to the high deductible insurance policy. Employers deposit money into the HRA, which can then be used to reimburse employees when they incur out-of-pocket medical expenses. The funds the employer deposits into the account is tax-deductible, and the money in the account can be used to reimburse employees for any tax-deductible medical expense.

 

It is important to note that the IRS has established certain rules that govern HRA accounts. When the plan is established, employers must define the types of expensive the HRA will cover. They must also limit the amount of money each employee is entitled to receive as reimbursement. Funds from HRAs can only be dispersed to cover the medical expenses of current employees, former employees and the dependents of employees.

 

The combination of a high deductible insurance policy and an HRA is ideal for some employees. It allows the employer to save money on health insurance coverage without placing an unreasonable burden on employees. Because an HRA's limits and covered expenses are determined by employers, they also provide employers with more control and flexibility when it comes to medical coverage. Furthermore, high deductible HRAs offers a significant tax advantage to employers who open them.

HRA Qualified Medical Expenses for 2012

A Health Reimbursement Arrangement, or HRA, is a plan offered to employees that will reimburse certain qualified medical expenses tax-free. Your individual HRA will be unique to what your business offers, but the basic eligible medical expenses and non-eligible medical expenses are the same. Understanding which expenses qualify under the HRA can help you get the most out of your plan.
HRA Qualified Medical Expenses for 2012
Under each HRA plan, there will be qualified medical expenses. These expenses include a certain amount that will be covered for the prevention, treatment, or diagnosis of certain medical conditions or illnesses as defined under Section 213(d) of the IRS Code.
For example, some of the common qualified medical expenses for 2012 HRA plans are ambulance fees, prescription birth control pills, acupuncture, dental treatment, chiropractic care, crutches, diabetes blood sugar test devices, eye glasses, hearing aid and batteries, laser eye surgery, lab fees, sterilization, surgery, optometrist, physician prescribed stop-smoking programs, x-rays and a list of dozens more eligible medical expenses.
HRA Non-Qualified Medical Expenses for 2012
There are also medical expenses that are not eligible for the HRA plan, including over-the-counter medications without a prescription, which became ineligible for HRA's, along with Health Savings Accounts and Flexible Spending Accounts, as of January 1st 2011. Any medical expenses that occurred before you signed up for your HRA will not qualify under the HRA.
Other non-qualified medical expenses for 2012 include health club memberships, cosmetic surgery, bottled water, diaper service, hair transplant, maternity clothing, nutritional supplements, and other expenses.
The HRA provided by your company lets you receive reimbursements that are tax-free from medical expenses you are going to make throughout the year. If you know ahead of time that you will have many of the expenses that qualify for 2012, it can be extremely beneficial for you to sign up for your company's HRA plan.

Section 125 Cafeteria Plans: Benefits and Key Considerations

What is a Section 125 Cafeteria Plan?The Cafeteria Plan is a benefit offered to employees that combines flexible spending accounts and premium only plans into a benefit program that co-exists with the Internal Revenue Code's Section 125. The benefits program offers the ability for employees who enroll in the plan to agree to paying a certain dollar amount from their salary into the plan, and receive reimbursement of qualified expenses that will not be taxed. Employers and employees benefit from the program as the money becomes pre-tax dollars and increases spendable income.
What are the benefits to the small business owner?A number of benefits for the small business owner arise from allowing employees to enroll in the Section 125 Cafeteria plan: Benefits include:

• Employers receive an overall reduced rate in their employee benefits package, including a reduced payroll tax liability, worker's compensation taxes, and a reduction in taxes from other benefits including FICA, state unemployment and federal unemployment taxes.
  
  


• Employees receive additional benefits and savings from the cafeteria plan, and therefore have a higher level of appreciation and satisfaction in regard to their employment. This ultimately leads to improved morale, increased motivation, and enhanced focus on their work duties.

What are the benefits to the employee?The cafeteria plan allows the employee to receive a variety of benefits from enrolling in the program and transferring some of their salary to pre-tax dollars. Benefits include:

• More take-home pay that is not taxed; employees that take advantage of the cafeteria plan will have more of their salary by the end of the year as they will be paying less taxes.
  
  


• Employees benefit from the program when they file their taxes the following year with reduced gross income.
  
  


• Employees are able to use pre-tax dollars for certain insurance premiums, dependent care expenses, medical expenses, and other qualified expenses.

Special Considerations

• Use It or Lose It
  As with a medical flexible spending account, funds that are added to the cafeteria plan throughout the calendar year must be used before the year is over, otherwise the remaining funds will go back to the employer. Employees should be aware of how much they plan to spend on qualified expenses, such as medical care expenses or insurance premiums, so that they are able to calculate their participating dollar amount accordingly.
  
  


• Discrimination Testing
  The offered cafeteria plan is required to follow a strict non-discriminatory code for all employees. The Internal Revenue Code requires employers to offer the Section 125 benefits program under the same terms to every employee that is eligible, regardless of their current compensation, job title, ownership, or other forms of discrimination. The Internal Revenue Code has testing requirements to be sure the employer is following their non-discrimination rule for the cafeteria plan.
  
  


• Exceptions to Participation
  While the cafeteria plan is offered to many employees of corporations, there are some restrictions. Sole proprietors are not eligible for the cafeteria plan, but their spouse is able to enroll if they are employed by the company as long as they follow the non-discriminatory rule of the Internal Revenue Code. The same goes for a partnership in which the spouse may enroll in the program if they are an employee of the company; however partners may not enroll. Employees of S-corporations are only able to participate in the program if they are not highly compensated according to the Section 125 requirements and are not shareholders of the company.
  
  


• Funds Access
  Employees that choose to enroll in the cafeteria plan must be aware of the funds available. The annual election of the flexible spending account under the cafeteria plan is available beginning on the first day of the plan year, which may vary for different businesses. The cafeteria plan may or may not start on the same day as their other insurance program. Each year, the employee must re-enroll in the cafeteria plan and use their funds within the calendar year, with a grace period of up to 75 days.

The Section 125 Cafeteria Plan offers a multitude of benefits for the employer and the employee thanks to the reduced taxes and pre-tax dollars for qualified expenses. Along with other benefits offered by employers, the cafeteria plan is enticing for inclusion in an overall benefits package.

Rules of the Road on Fringe Benefits

What are fringe benefits?Many small business employers offer fringe benefits as an addition to salary, and many of these are exempt from taxation if certain rules and conditions are followed. Examples of fringe benefits offered to employees by small business owners include insurance, reimbursement for education, various discounts, and other programs that fall under the fringe benefit rules. These fringe benefits are attractive to potential job candidates as they begin their search for an ideal job position.
What are common examples of fringe benefits?Job seekers are now exploring the possibility of choosing a position with a company that offers the most benefits to them aside from salary. Fringe benefits often come in benefit packages, which may include various types of insurance including medical, dental, disability and life, as well as paid time off (PTO) which may be paid sick days, holidays, and accrued vacation time.
Additional fringe benefits now offered by many small business owners include retirement plans, child care services or reimbursement, education reimbursement, maternity leave, cafeteria plan, discounts for local services, bank or credit union benefits, flexible work schedules, and more. Some businesses also allow the employee to use their company vehicles or equipment for personal use as part of their enticing fringe benefit package.
What is the tax treatment of fringe benefits?The term "fringe benefit" may seem self-explanatory to the general observer, but the Internal Revenue Code also includes their own set of rules in regards to tax treatment of each individual benefit.
The IRS has specific requirements and conditions for fringe benefits to be tax exempt; however some benefits may also be partially non-taxable even if they are not fully exempt.

• Income Taxes on Benefits- Aside from the fringe benefits that are considered excluded from tax, some benefits will be taxable and included as part of compensation. These benefits are typically reported on the W-2 form. Some special rules apply to the income tax of fringe benefits for withholding, depositing, and reporting the employment tax of these benefits. The IRS provides a detailed guide on the types and tax treatment of fringe benefits in their Taxable Fringe Benefits Guide.
  
  


• Benefits Excluded from Tax - Some fringe benefits are commonly considered to be excluded from tax and therefore become non-taxable benefits. Some exclusions typically include assistance for adoption, childcare, education, or dependant care, achievement awards, health care insurance, group term life insurance, reimbursements for moving expenses, retirement planning, transportation benefits, and working condition benefits.

While some fringe benefits are not excluded from tax, they still provide employees with the advantage of receiving benefits that go beyond their normal salary and bonuses. In light of some preferential tax treatment and favorable view by job seekers, it's worthwhile for the small business owner to consider offering fringe benefits.

What Is the Age Limit for Claiming a Child as a Dependent for Federal Tax Purposes?

Claiming a child as a dependent for federal tax purposes offers the taxpayer a number of tax related benefits. Along with being able to claim an exemption for the child, the taxpayer may also be able to take advantage of the Child and Dependent Care Credit and the Earned Income Credit, further reducing a taxpayer's federal income tax obligation. In order to claim a child as a dependent, there are five basic tests that must be passed first. Those tests are the relationship, residency, support, joint return, and age test.
According to the age test, a child must be under the age of 19 at the end of the tax year in which a taxpayer plans to claim the child. In addition, the child must be younger than the taxpayer or the taxpayer's spouse if filing jointly. If, however, the child is a full-time student, the age limit is raised. In that case, the child must be under the age of 24 at the end of the tax year and younger than the taxpayer, or the taxpayer's spouse if filing jointly.


TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Does My Business Need to Collect Sales Tax?

A small business faces numerous hurdles along the way to success. At the top of the list is navigating the various local, state, and federal taxes obligations the business incurs. Neglecting to file taxes that the company owes can cause a fledging business to fail before it even gets off the ground. Among the potential tax obligations that a business may incur is the requirement that the business collect sales tax. Calculating the amount of sales tax due is complicated; however, before a business gets to that point it must decide whether or not it is even required to collect the tax, and if so at what rate.

Sales tax laws and rates vary from one state to the next, and sometimes from one city to the next within the same state. In addition, the rates are subject to change, and do change on a regular basis. If you deliver products or services to people in a state within the United States in which your business has any type of physical presence, you may need to collect sales tax if that state imposes a sales tax.

Almost all products that are sold on a retail level are taxed, assuming the state in question collects sales tax. Some of the important exceptions include food, prescription drugs, animal feed and products that are intended for re-sale. Services are much more complicated. Some states exempt all services while others only exempt some services.

The requirement that your business has a "physical presence" in the state also leads to much confusion. A "physical presence" does not just mean an actual brick and mortar office. A call center, sales agents, warehouse, or other "presence" in the state can create the legal nexus required to trigger the sales tax obligation.

If you are in doubt about your situation, feel free to call our office.

TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.