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Year-End Payroll Tax Planning
Year-End Payroll Tax Planning
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Agenda
I. 2016 Federal Wage and Tax Limitations
II. Marriage Equality – Supreme Court Decision
III. ACA: What Payroll Needs to Know
IV. Federal and State Backup Tax Withholding
V. IRS 2016 Hot Topics
VI. State and Local Hot Topics
VII. 2015 FUTA Credit Reduction States
VIII. State SUI Wage Base Increases
IX. Miscellaneous Year-End Payroll Tasks
Year-End Payroll Tax Planning
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2016 Federal Wage and Tax Limitations
Social Security $118,500 (6.2%)=$7,437
401(k) $18,000 Age 50+ $6,000
Adoption Assistance $13,460
Qualified Parking $255
Transit Pass $130
Health FSA $2,550
Foreign earned income exclusion $101,300
Year-End Payroll Tax Planning
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Marriage Equality – Supreme Court Decision
Marriage between same-sex couples now recognized in all 50 states.
Employers must consider any state wage reporting and withholding implications of health insurance, cafeteria plan elections, and other fringe benefits offered to same sex spouses.
Primarily impacts the 13 states that did not recognize same sex marriages prior to the decision.
Alabama Arkansas Georgia Kentucky Louisiana Michigan Mississippi Missouri Nebraska North Dakota Ohio South Dakota Tennessee
Year-End Payroll Tax Planning
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ACA: What Payroll Needs to Know
Effective January 1, 2015, employers averaging or expected to average 100 or more FT employees (or FT equivalents) will be subject to the coverage mandate. Payroll and HR will be dealing with data collection around:
– Control group aggregation (common ownership, add up to 100)
– FT time status (determined month to month, average 30 hours/week or at least 130 hours in a month)
– Look-back periods (measurement periods, employer determines picks) if employee met FT status above, then coverage must be offered
In 2016, the coverage mandate drops to 50 FT or FT equivalents
Employer cost of healthcare reported on Form W2 (code DD)
Year-End Payroll Tax Planning
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ACA Forms
New Forms (Internal Revenue Code Section 6056)
– Effective January 1, 2015, employers with 50 or more full-time or full-time equivalent employees must provide certain information reports to employees as well as transmit to the Internal Revenue Service.
1095-B - Issued by insurance providers or self-insured employers to employees
1095-C - Issued by employers to employees
1094-B - Transmittal to Form 1095 B
1094-C - Transmittal to Form 1095 C
Year-End Payroll Tax Planning
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ACA Forms – Due Dates
Forms 1095-B and 1095-C
– Due to the individual by February 1, 2016
– Due to the IRS by February 29, 2016 (if filing by paper) or by March 31, 2016 (if filing electronically)
Forms 1094-B and 1094-C
– Due to the IRS by February 29, 2016 (if filing by paper) or by March 31, 2016 (if filing electronically)
Year-End Payroll Tax Planning
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Federal/State Backup Tax Withholding
Under certain circumstances, payments made to non-resident individuals for performing services in the United States and certain states may be subject to mandatory “backup” tax withholding at the time payment is made to the individual.
Failure to Perform Backup Withholding
– Under federal and state laws/regulations, payer is responsible for performing the income tax withholding at the time payment for services is being made. Failure to do so will result in a 100% trust fund tax liability for the payer.
– Certain exemptions exist based on federal rules as well as each state’s rules and regulations. In order to qualify for an exemption, the payee (vendor) must generally provide the payer with an “exemption declaration” or state-specified forms.
Year-End Payroll Tax Planning
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Federal/State Backup Tax Withholding
Issues
– Connection between federal and state backup tax withholding
– Domestic as well as international service providers
– Tax Treaty and Visa exclusions may not offer relief from state income tax withholding
– Forms W-8 series (e.g., W-8BEN/ECI) generally do not offer relief from state income tax withholding
– Form 8233 may provide relief from federal withholding but not state withholding
– Requires some level of compliance from both payer as well as payee
– On-boarding process for vendors
Year-End Payroll Tax Planning
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IRS 2016 Hot Topics
Audit Activity
– Fringe benefits
– On-site meals
– Expense Reimbursement/Accountable Plan
– Independent contractors Nonresident reporting and withholding
Domestic contractors
– Inpatriate and expatriate employees
Affordable Care Act
– Independent contractor impact
– Penalties for noncompliance
Year-End Payroll Tax Planning
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Particular Focus
Benefits-in-kind
– There has been a significant increase in federal and state taxing authority focus on certain “benefits-in-kind” provided by employers to employees. Items such as gift cards, travel, entertainment event tickets, clothing, electronics, etc. all may fall into the category and therefore be considered as taxable wages to the employee.
Things to consider:
– De minimis value
– Fair market value
– Grossing up value
– Employee notification
Year-End Payroll Tax Planning
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State and Local Hot Topics
Independent Contractor Audits – Whistleblower sites – More rules around certain types of workers – Independent contractor reporting – Form W-2 to Form1099-MISC
Withholding Audits – Work state versus Resident state – Local tax audits increasing
State Unemployment Audits – Employee movement from one company to another SUTA dumping
– PEO, Pay Agent, and Management Company filing
Year-End Payroll Tax Planning
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2015 FUTA Credit Reduction States
California 1.50% Connecticut 2.10% Ohio 1.50% Virgin Islands 1.50%
Impact of the FUTA Credit Reductions on your organization. Outlook on FUTA Credit Reductions in 2016 and on.
Year-End Payroll Tax Planning
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State SUI Wage Base Increases
State 2016 2015 State 2016 2015 Colorado 12,200 11,800 New York 10,700 10,500
Iowa 28,300 27,300 North Carolina 22,300 21,700
Kansas 14,000 12,000 Oklahoma 17,500 17,000
Kentucky 10,200 9,900 Oregon 36,900 35,700
Minnesota 31,000 30,000 Pennsylvania 9,500 9,000
Montana 30,500 29,500 Utah 32,200 31,300
Nevada 28,200 27,800 Vermont 16,800 16,400
New Jersey 32,600 32,600 Washington 44,000 42,100
New Mexico 24,100 23,400 Wyoming 25,500 24,700
Year-End Payroll Tax Planning
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Miscellaneous Payroll Tasks
Verify all stop payments, voids and manual checks have been processed
Schedule an out of sequence payroll for any adjustments
Schedule a bonus payroll if necessary
Reconcile 401(k) and the employer match, true up if needed
Review AP and GL for unreported wages
Reconcile bank accounts and GL accounts
Calculate any gross ups
Verify proper payroll/W-2 configuration for fringe benefits
Verify third party
Complete notifications required under special accounting rule
Year-End Payroll Tax Planning
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Miscellaneous Payroll Tasks (continued)
Prepare Forms 1042-S if necessary
Review 2016 SUI rates assigned; provide to third-party vendor or configure internal system
Prepare and provide employees Form 3921 for Incentive Stock Options and Form 3922 for Employee Stock Purchase Plans
Review independent contractors to ensure proper worker classification
Year-End Payroll Tax Planning
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Employee Communication
Verify mailing address
Date of last paycheck for 2015
W-2 mailing date
Revise Form W- 4 if needed
Payroll contact information for W-2 questions
2016 wage and tax limits
Flexible spending deadlines and new elections
Special communication to executives if warranted
Year-End Payroll Tax Planning
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Ryan Contact Information Human Capital Tax Services 415.593.0580
Stephanie Pfister Director [email protected]
Michael Mojabi Principal and Practice Leader [email protected]
Cynthia Vance Senior Manager [email protected]
19 © 2015 Ryan, LLC. All rights reserved. All logos and trademarks are the property of their respective companies and are used with permission.
This document is presented by Ryan, LLC for general informational purposes only, and is not intended as specific or personalized recommendations or advice. The application and effect of certain laws can vary significantly based on specific facts, and professional advice of any nature should be sought
only from appropriate professional advisors. This document is not intended, and shall not be deemed, to constitute legal, accounting or other professional advice.