Get to Know the Health Care Law’s Employer Shared Responsibility Payment

IRS Tax Tip 2015-36, June 17, 2015
Under the Affordable Care Act, applicable large employers – those with 50 or more full-time employees, including full-time equivalent employees – are required to take some new actions. To prepare for 2016, if your organization is an ALE, you need to track information each month in 2015, including:
Whether you offered full-time employees and their dependents minimum essential coverage that meets the minimum value requirements and is affordable
Whether your employees enrolled in the minimum essential coverage you offered
You need to track this information because you could be subject to an employer shared responsibility payment if your organization falls into either of these circumstances:
You offered coverage to fewer than 70 percent of your full-time employees and their dependents in 2015 and at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and receives a premium tax credit. The 70 percent threshold is for 2015, after 2015 this increases to 95 percent.
You offered coverage to at least 70 percent of your full-time employees and their dependents in 2015, but at least one full-time employee receives a premium tax credit because coverage offered was not affordable, did not provide minimum value or the full-time employee was not offered coverage. After 2015, this threshold increases to 95 percent.
For more information, visit the Employer Shared Responsibility Provisions Questions and Answers page on

IRS Rule Leads Restaurants to Rethink Automatic Tips Gratuities Added for Large Groups Will Be Taxed as Service Charges

An updated tax rule is causing restaurants to rethink the practice of adding automatic tips to the tabs of large parties.

Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don’t always report them fully.

The change will complicate payroll accounting for restaurants that stick with automatic tips, because they will need to factor those tips into pay, meaning hourly pay rates—could vary day to day depending on how many large parties are served.

Restaurants are required to report to the IRS what its employees report receiving for tips and to pay Medicare and Social Security taxes on those amounts. Restaurants are eligible for an income-tax credit for some or all of those payments, but service charges aren’t eligible, according to Marianna Dyson, a payroll tax attorney in Washington, D.C., who represents restaurant chains.

The change comes amid increasing costs and record-keeping requirements for restaurants. In January, restaurants with 50 or more full-time workers will be required to offer health coverage to employees working 30 or more hours a week, though penalties don’t begin until 2015.

Restaurants adopted automatic gratuities to help ensure that their servers—whose tips supplement a salary that is often less than the federal minimum wage of $7.25 an hour—weren’t stiffed on large tabs. But many servers are likely to support dropping the practice because they don’t like the idea of their tips being treated as wages, which requires upfront withholding of federal taxes, and means they won’t see that tip money until payday.

The IRS ruling was issued in 2012 to clarify and update earlier tax guidance on tips, which didn’t spell out how automatic tips were to be treated. Restaurants persuaded the agency to delay implementation until next year.

In a statement, the IRS said it noticed an increase in the use of “auto-gratuities” and that it believed “additional clarification in this area would be in the best interest of tax administration.”

The updated rule says the automatic tips are service charges because they aren’t voluntary. In a question-and-answer section of the ruling, the IRS provided an example of a restaurant suggesting different tip amounts, and said that practice isn’t subject to federal withholdings because the customer is still free to choose whether and how much to tip.

Still, the ruling has caused some confusion. Some restaurants insert an amount on the tip line and then remind guests on the check that they are free to adjust that amount up or down. Ms. Dyson, the payroll tax attorney, said that practice could come under scrutiny from the IRS. “How far can you go before the IRS says that looks like a service charge?”


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Bel Air payroll company AccuPay files for bankruptcy protection

Attorney says owners of company being investigated for not forwarding tax payments believe they can pay creditors

By Lorraine Mirabella, The Baltimore Sun10:42 p.m. EDT, March 13, 2013

A Bel Air payroll company under investigation for allegedly not forwarding clients’ tax payments to tax collectors has filed for bankruptcy.

AccuPay Inc. filed a petition for a Chapter 7 bankruptcy Tuesday in U.S. Bankruptcy Court in Baltimore, listing 95 creditors and debts of between $100,001 and $500,000. Chapter 7 allows for an orderly liquidation of a company’s assets to pay of creditors.

A bankruptcy attorney for the company’s owners said Wednesday that his clients believe they will have funds available to pay creditors. In the bankruptcy filing, the company lists estimated assets of between $100,001 and $500,000

“The principals believe that there is sufficient money to pay the claims,” said James A. Vidmar, the attorney for AccuPay’s owner, Beverly Carden. “That’s what they think, and that’s subject to bankruptcy court procedures.”

Carden could not be reached Wednesday for comment.

The East Churchville Road firm, which has an estimated 500 to 600 clients, shut down at the end of February after a Bel Air veterinary hospital, Animal Emergency Hospital, accused it in a lawsuit of “repeatedly and regularly” failing to pay or making only partial payments of federal and state withholding and unemployment taxes over the past five years. DuClaw Brewing Co. had filed a complaint last summer.

Three more AccuPay clients — a law firm, another veterinary clinic and a construction company — then filed lawsuits making similar allegations, bringing the total losses alleged in pending complaints to more than $465,000. The company had been sued by other clients for similar claims about five years ago.

Since the recent lawsuits, both the Bel Air Police Department and the Internal Revenue Service have started investigating the firm.

Vidmar, AccuPay’s bankruptcy attorney, said he did not know how many of the 95 businesses and individuals listed as creditors are clients. Some of those listed could be owed business expenses, he said.

“There were 95 potential creditors listed, and a lot are probably owed nothing,” Vidmar said. “That’s got to play out. When the company abruptly stopped, there may have been deposits in the works and payments in the works. There is money there. The bank accounts are there. There’s money there to be distributed.”

But some creditors worry that relief may come too late to help, or not at all.

Gary Burrows, owner of Honor Star Service Inc. of Dallastown, Pa., an AccuPay client that provides snack services to offices, says his company is out about $23,000 worth of payments that AccuPay was supposed to make last year to the IRS and tax collectors in Maryland and Pennsylvania.

“It’s going to be a long, drawn-out thing,” Burrows said. “The tax people are going to want to get paid before all this is settled, and being a small company, we just don’t have that money laying around.”

Vidmar said the bankruptcy trustee assigned to the case has begun working with the company and attempting to secure funds that had been frozen as part of a Harford County judge’s order.

Police in Bel Air have said the investigation could involve hundreds of potential victims — any business that hired AccuPay to handle its payroll and remit its state and federal taxes.

Bel Air payroll firm sued for allegedly keeping clients’ tax payments

If you are effected by this and need help, we are familiar with cases like this. We helped several former NETPAY clients several years ago after they closed due to similar situation. Contact us today.


By Jamie Smith Hopkins and Lorraine Mirabella, The Baltimore Sun

8:12 p.m. EST, March 1, 2013
A Bel Air company that handled payrolls for many employers in the area is being sued by clients for allegedly stealing years of tax payments rather than sending them on to the tax collectors as required — leaving the companies on the hook.
Plaintiffs include DuClaw Brewing Co. and Animal Emergency Hospital, both of Harford County, which are each claiming losses of tens of thousands of dollars in separate lawsuits against payroll firm AccuPay. Stuart Levine, a Towson attorney who represents other businesses that used AccuPay, said he believes the payroll company had as many as 600 clients, most of them in Harford.
“Every one of them is at risk,” Levine said.

The Bel Air Police Department said Friday that it is investigating “suspected criminal activity” at AccuPay after receiving “numerous” complaints about unpaid federal income tax withholdings. Police urged AccuPay clients to call the Internal Revenue Service to determine if their taxes had been paid.

Bel Air police blocked access to AccuPay’s Churchville Road office on Friday while investigators went through boxes of paperwork. Yellow police tape was strung across the property, a converted home.

AccuPay officials, including Kieran and Beverly Carden, could not be reached for comment. The company’s phones were answered Friday first by voice mail and later not at all. A notice on the front door Thursday said only, “Payrolls were mailed or are in the back mailbox. Thank you.”

George S. Robinson IV, DuClaw’s attorney, said AccuPay handled taxes for many local companies, and he’s hearing from some of them. “It could have a tremendous … economic impact on the area, depending on how large the scope is,” he said.

A Bel Air competitor said Friday that it has been swamped by AccuPay clients since the company — officially or not — closed its doors this week. George Heidelmaier, president of It’s PayDay, said that “there’s a lot of people who are going to get hurt” by the AccuPay fallout — and business owners don’t know whom to rely on now.

“One of the first questions out of people’s mouths is, ‘How do I know I can trust you?’ ” Heidelmaier said.

Dennis Brager, a California tax lawyer and former trial attorney for the IRS, said it’s not an unusual problem for payroll taxes to go unsent without the employer’s knowledge. Sometimes the fault lies with a payroll services firm, sometimes with an employee. The problem for employers, he said, is that the taxes must be paid — again.

And while the IRS might forgo penalties, it probably won’t waive interest payments, he said.

“The employer’s ultimately responsible for making sure those taxes get paid,” said Brager, of Brager Tax Law Group. “While all this is going on, it’s not unusual for the IRS to file a tax lien, which will impact the business’ credit rating and could cause the bank to pull the credit line. I mean, it’s just a nightmare.”

DuClaw’s lawsuit was filed last summer in Harford County Circuit Court. The company alleged that AccuPay took more than $306,000 in tax payments over multiple years that it failed to pass on to the IRS and the state, paying only after the brewing company discovered the problem last year — and leaving DuClaw with the accrued penalties and interest.

In its complaint, DuClaw asked for about $58,000 in compensation for losses from the “vile fraud,” plus punitive damages. The company accused AccuPay of perpetrating a Ponzi scheme in which clients’ taxes were diverted for personal uses and to cover the payroll taxes of other client companies.

“This deliberate and systematic fraudulent scheme of robbing Peter to pay Paul was tantamount to a game of musical chairs where at some point the music would stop and the AccuPay client without its payroll being covered would be liable to the IRS and the State Comptroller’s Office,” DuClaw said in its suit. Now, it added, “the music has stopped.”

DuClaw owner Dave Benfield said Friday that he discovered discrepancies in an internal audit, launched after one of his employees ran into an attorney working on a different case against AccuPay.

“It made me sick to my stomach,” he said.

The IRS waived some but not all of the penalties and fees, he added.

Benfield said the payroll company owners “were driving very nice cars,” including Jaguars and BMWs, and “had very nice houses.”

Animal Emergency Hospital said in its suit, filed Wednesday, that AccuPay “repeatedly and regularly” failed to pay or made only partial payments of federal and state withholding and unemployment taxes over the past five years, even though the payroll firm withdrew the full amounts from the hospital’s account.

Animal Emergency Hospital alleged that about $89,000 was not passed on, and said it owes “substantial” penalties and interest. An official at the veterinary hospital declined to comment Friday; its attorney did not return telephone calls.

Shortly after the case was filed this week, Harford County Circuit Judge William O. Carr ordered AccuPay to preserve all documents and records relating to its operations.

A third suit, filed Friday by the Towson law firm of Mark Van Bavel, seeks $30,000 in damages against AccuPay for allegedly underpaying the firm’s withheld taxes. Van Bavel said in an interview Friday that the amount is a placeholder — he doesn’t know how much he might be out, but he wanted to file the suit quickly “in case I have to get in line.”

He said an AccuPay employee called his three-person office in tears on Thursday to alert him that the payroll firm was closing.

Levine said his clients, including two restaurants and another animal hospital, might not file lawsuits because of a low likelihood of recovering the losses. But he said he expects additional lawsuits to be filed.

He said he hopes attorneys working on behalf of AccuPay clients can coordinate their efforts to try to put the company into receivership. Like DuClaw’s attorney, Levine is worried about a ripple effect if many business are forced to essentially pay taxes twice.

Both the IRS and state tax collectors said Friday that they’re legally unable to comment on individual tax matters. But the Maryland comptroller’s office and the state Department of Labor, Licensing and Regulation said they were aware of the situation and urged companies to call if they believe they have tax problems.

The comptroller handles income tax withholding, while the labor agency oversees unemployment-insurance taxes.

“We will work with any employer who has difficulty making the payments,” said Julie Ellen Squire, assistant secretary of the labor department’s unemployment insurance division.

The state can waive penalties and interest in some cases of unpaid unemployment-insurance taxes, and no-interest payment plans are available, she said.

In its suit against AccuPay, DuClaw said it had used the company for payroll services since 1995. DuClaw alleged that it received warnings of deficient or no payments from the IRS and the state in the last several years, but in each case AccuPay said the tax collectors “were at fault and that it would reconcile the account.”

AccuPay did not take care of the problem, but it did change its client’s address on file with tax collectors so the notices then went to the payroll company, DuClaw said in its lawsuit.

DuClaw alleged that AccuPay’s Ponzi scheme fell apart because it lost clients in the recession, “making it more difficult for Defendants to cover the payroll gap.”

AccuPay twice forfeited its state certification to operate in Maryland — in 1991 and 2006 — for failing to file property returns, according to Maryland Department of Assessments and Taxation records. In each case, the company was reinstated.

Its website, now offline, had earlier declared that the company delivered “peace of mind” to clients.

“If you process your own payroll, you owe it to yourself to see how AccuPay can save you time and expense, and free you from your payroll headaches,” the company website said.

William Seccurro, a retired Harford County Chamber of Commerce president, is a former client and said the allegations shocked him. He said he had no problems with the company in his 10 years at the chamber.

“I’m really sorry to hear this,” he said.

Brager, the former IRS trial attorney, suggests that employers check up on their payroll services provider by getting payment records from the tax collectors. It’s also a good idea to choose a firm in a financially strong position, he said.

Still, he doesn’t understand how a nonpayment and underpayment problem could have dragged on for years. Even if a payroll company manages to divert the delinquency notices, the IRS generally sends someone to the employer’s offices if large amounts of payroll taxes aren’t paid, he said.

“It’s disturbing that … that kind of liability could be sitting out there without literally a knock on the door,” he said.

Such liabilities can drive a company out of business, he said — “absolutely.”

Baltimore Sun Media Group reporters Jim Kennedy and Erika Butler contributed to this article.

Copyright © 2013, The Baltimore Sun


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