Accounting Services Update: Unclaimed Property, Employee Advances, Backup Withholdings
Lost, mislaid, and abandoned property is all personal property which is no longer in the possession of its rightful owner. Lost or unclaimed checks are a typical example that impact many businesses (i.e. long, outstanding checks on the bank reconciliation).
Unclaimed property laws provide a system whereby items such as un-cashed checks are reported to the individual state’s Unclaimed Property Office, then published in the local newspaper and then finally turned over to the State for safe keeping until its rightful owner makes a claim. South Dakota Codified law 43-41B outlines the requirements for reporting unclaimed property to the SD State Treasurer’s Office.
What do I need to know?
According to SD Codified law, a check issued which has been outstanding for more than three years after it was made payable, is presumed to have been abandoned. Any payroll check which has been outstanding for more than one year after it was made payable, is presumed to have been abandoned. There are many more examples as defined by SD Codified Law but these are the most common.
Unclaimed Property reports and remittance are due November 1st for property reportable to the State of South Dakota as of the preceding June 30th.
How does this impact you?
Review your monthly bank reconciliations for long, outstanding checks. If a check has not cleared the bank timely, it is your responsibility to follow up to determine the reason. Does another check need to be issued as the vendor lost it? Was the amount paid on a subsequent invoice and is shown as paid twice in the accounting records? Is the employee’s forwarding address no longer valid?
If after all efforts are exhausted, business owners should read the filing requirements at the link below and ensure reporting is completed.
For information regarding filling requirements, see https://southdakota.findyourunclaimedproperty.com/app/faq-report.
For information regarding SD Codified law, see https://sdlegislature.gov/statutes/Codified_Laws/.
As a valued client of Ketel Thorstenson, LLP, we would like to take this opportunity to provide you with IRS regulations regarding advances made to employees. Wages generally are taxable and subject to employment tax (i.e. FICA, federal income tax withholding, FUTA) when actually paid or when made available to employees. This would include payroll advances made to employees. This is referred to as the “constructive receipt doctrine”.
What are my options?
Option #1: Under the constructive receipt doctrine, taxes should be withheld at the time of the advance. When the employee repays the advance, it is deducted on a pretax basis. If a salary advance is repaid in another tax year, the taxation and reporting becomes more complicated.
For example, ABC Company advances $500 to its employee on 1/15/15. Taxes should have been withheld on this date and remitted under the normal 941 tax filings. If the amounts were not properly withheld, taxes were not remitted to the IRS timely and, in addition, amendments may need to be made to Form 941 tax filings.
Option #2: For these reasons, some employers elect to provide their employees with interest free loans in lieu of salary advances. Employee loans must 1) be substantiated by a signed promissory note agreeing to repay the loan and 2) the daily aggregate balance cannot be more than $10,000, otherwise interest must be charged. This option removes any complex tax and reporting procedures.
Backup Withholdings Related To Vendor Payments
Ketel Thorstenson, LLP would like to take this opportunity to provide you with IRS regulations regarding backup withholdings related to your vendor payments. Form W-9 should be provided to and received from your vendors before the first payment is made to them. This form provides you with the correct tax identification number (TIN), or Social Security number (SSN), which is certified by the business or individual. This information is used by your business to determine who receives a Form 1099 at the end of the year. Once a Form 1099 is filed, the IRS will send you a notice if the payee’s name and TIN on the information return you filed do not match the IRS’s records.
What if I don’t receive a W-9? Your payments to vendors are subject to 28% backup withholdings if:
- A vendor fails to provide your business with a certified Form W-9 indicating they are not subject to backup withholdings;
- A vendor does not furnish their TIN;
- IRS notifies you the TIN was incorrect.
Once these amounts are withheld, they are submitted to the IRS and are not refundable to the vendor. If a Form W-9 is later provided and the business is exempt from backup withholdings, then the Form 1099 will indicate the amount withheld and paid to the IRS during the year.
Even if the payee does not provide a TIN in the manner required, you are generally not required to backup withhold on any payments you make if the payee meets certain criteria. Refer to the W-9 instructions for further information regarding these exemptions. The most common exemption is a business which is a corporation.
A copy of the instructions for the Form W-9 can be found at this link: https://www.irs.gov/pub/irs-pdf/iw9.pdf.
There are various penalties assessed against the vendor for failure to furnish the TIN information, providing false information and falsifying information. See penalties outlined in the instructions.
If you would like to discuss these topics further or have specific questions regarding your business, please contact your bookkeeper in charge or Jani Zweber, Accounting Services Manager, for further assistance at 605-342-5630.