Last week, the 10th U.S. Circuit Court of Appeals in Denver, CO upheld a ruling overturning a 2001 law passed by the Utah State Legislature that barred state and local public employers from withholding voluntary political contributions from its employees’ paychecks.

The 2001 “Paycheck Protection” legislation, passed by a Republican-controlled legislature, and signed into law by a Republican governor, was designed to prevent government employee unions from allowing their members to make additional contributions to the unions’ Political Action Committees via payroll deductions.  The legislation held that only membership dues could be deducted from paychecks and paid to those unions. Union leaders filed the suit against the state claiming the law violated the protection of political speech extended by the First Amendment to the U.S. Constitution. A U.S. District court sided with the unions in 2006 and the 10^th Circuit upheld that ruling last week.

Tax Reduction and Reform Act of 2007 will increase payroll tax on S-Corp owners

In the last week of October, U.S. House Ways & Means Committee Chair Charles Rangel introduced H.R. 3970, the Tax Reduction and Reform Act of 2007.  While Rangel says he doesn’t see the bill getting much action until next year, S-Corp owners should be aware, and in my opinion very upset, at a specific provision in the bill that will increase taxes on many S-Corp owners.

The provision is designed to make sure S-Corp shareholders who are not actively engaged in the business, and not paying their "fair share" of taxes, are made to do so.  However, the unintended consequence of the provision is that owners who are paying their fair share will have to pay more.  

The wage base for the Social Security portion of FICA taxes in 2008 will increase to $102,000 from $97,500.

That means people who made at least that much in 2007 will pay a whopping $279 more next year.  It also means businesses will pay an additional $279 per employee who makes that much.

1. How to decide if you have payroll processing responsibilities

As a small business owner, one of the first questions you may have is, “Do I need to process payroll?” The easy answer? If you have employees, or use independent contractors, then you need to run payroll. It’s no shock that the IRS expects you to play by their rules – when it comes to taxes, employee paperwork and reporting regulations.

Your payroll responsibilities include withholding, reporting and paying federal, state and local taxes on time and using the proper forms. If you make an error in any of these areas, your small business could face hefty government fines.