Month: October 2014

The IRS has finally released Revenue Procedure 2014-61. This is the one we have been waiting for that gives us the items that are adjusted for inflation each year but are not pension plan related. This includes such items as transportation fringe benefits, adoption credit, and the foreign earned income exclusion amount. Here are the 2015 rates in the order they appear in the procedures:

Adoption credit: $13,400

Cafeteria Plans: FSA limit $2,550. This is up from $2,500 for 2014

Qualified Transportation Fringe Benefits: These rates are not changed from 2014. Parking remains $250 and transit passes remain $130.

Medical Savings Accounts:

Foreign Earned Income Exclusion: $100,800

There are many other items listed in the revenue procedure that may be of interest to payroll professionals that we don’t cover here. To review the procedure itself click here.

Processing Forms W-2 has been a staple of payroll life. Only a very few changes have occurred to the timetable for processing of the forms in the 37 year ends I have completed. The due date to the employee is on or before January 31st and currently they must be submitted to the Social Security Administration (SSA) by the last day in February if filed on paper and by the last day in March if filed electronically. With the invention of electronic filing the SSA wanted to encourage less paper and more electronic filing so it extended the then due date for all of the last day in February to the last day in March.  More time is the reward for filing electronically.  But that might be about to change.  It appears that this extended deadline may be the cause of excessive tax fraud.  The US General Accountability Office (GAO) has issued a report to Congress on this “large, evolving threat” that has been estimated at over $5.2 billion a year.  This tax fraud involves the filing of bogus tax returns with bogus Forms W-2 claiming nonexistent tax refunds using identity theft.  By the time the IRS gets the info from the SSA the fraud is done. But there is a movement in Congress to prevent this fraud going forward.  And that movement is simple.  Scale back the due date for filing electronic Forms W-2 to the SSA and get rid of the paper filing. For electronic filers, instead of allowing the extra two months using the March 31st due date, make the due date January 31st for both giving to the employees and filing to the SSA.  In combination with this, lower the threshold for filing on paper from the current 250 form limit to 20 by 2016.  Of course filing with SSA by January 31st may be unreasonable so the alternate date being proposed is February 15th.

And it isn’t just the feds looking into changing filing requirements including the due dates.  The states are also addressing this issue.  For example, Alabama is currently proposing the January 31st deadline move from the current February 28th date as of the 2015 Forms W-2 filed in 2016.  Nebraska has the due date to the state of February 1st but is proposing moving the current February 15th  due date to the employee to February 1st as well. In addition, the states are way ahead of the feds when it comes to lowering the paper filing thresholds.  While the fed has remained steadfast at 250 many of the states have already reduced the paper filing from the used to be norm of less than 250 (Illinois) to 100 (Kentucky) to 50 (Massachusetts) to 25 (Mississippi) to even 10 (Minnesota).

The gist of these proposed changes is simple.  Times are moving forward and what worked in the past doesn’t necessarily work in the future and payroll must prepare for these changes.

The trend for 2015 is for states to require employers to file, report, and/or deposit electronically using their website in most cases.  The latest is New York.  Electronic filing is mandatory for withholding tax filings NYS-45 and NYS-1 for 2015.

Yesterday I very quickly posted the 2015 social security wage base within a half hour after it was released by the SSA to make sure my readers got it as soon as possible.  But now I want to take the time to do all the math for you so you have all the details for the 2015.  First, again, the 2015 social security wage base is $118,500. This is up $1,500 from the current base of $117,000.  The rate does not change. It will still be 6.2% for employees and 6.2% for employer unless Congress passes legislation during its lame duck session after the November elections.  The maximum tax that can be deducted in 2015 is $7,347.00.  That is up $93 from this year.

The Medicare rate also remains 1.45 percent for both employees and employers and there is no wage limit.  The Additional Medicare Tax still kicks in at $200,000 in wages and still has a rate of 0.9% paid by the employee only.

The IRS today announced the 2015 pension plan limits. They are as follows:

• Employee elective deferral will increase to $18,000 up from $17,500 for this year
• Catch up contributions for employees 50 and over will actually increase this year to $6,000 up from $5,500
• Limit on defined contribution plans will increase to $53,000 up from $52,000 for this year
• Annual compensation limit will increase to $265,000 up from $260,000
• Definition of highly compensated employee will increase to $120,000 up from $115,000 for this year

For those of you who need the full information on all the various limits please see attached pdf.  IRS 2015 Pension Plan Limitations Complete Text

It looks like we have a new movement afoot, shall I say.  Although under the 2013 U.S. Bureau of Labor Statistics National Compensation Survey  less than six percent of private sector employees have access to subsidized commuting that is available under the Internal Revenue Code.  But this may be changing. Cities are starting to mandate transit benefits to help out employees in that city. The latest is New York City whose Mayor Bill de Blasio signed into law a requirement that employers with 20 or more employees give their full-time New York City employees an option to purchase their transit benefits with pre-tax dollars.  The law was signed on October 20th and is effective January 1, 2016. It does not apply to parking benefits and there are civil penalties.  New York is the third city to enact such legislation. Washington D.C.’s mandate will take effect also in January 2016.  But the first city to do so was, of course, San Francisco, CA.  That ordinance was passed and effective in 2009.  All these cities impose the mandate on employers with 20 or more employees. The purpose of these mandates is to give the employees tax breaks on commuting already worked into the Internal Revenue Code but not readily available unless an employer offers it to them.  For example, according to the organization Riders Alliance if an employee uses the current pre-tax level of $130 per month, the New York City employee could save an average of $443 in taxes each year by buying the Metrocard (cost is $112) through an employer.  If you calculate the benefit out across the board any employee who buys the transit passes through their employer and uses the full $130 could save $514 per year in taxes.  And it doesn’t cost the employer anything either. In fact it could save them money according to Riders Alliance since offering the benefit could save the employer $103 per employee per year using the same $112 Metrocard.

And it may not be just cities who are imposing these mandates.  Air Quality Management Boards are also looking into this type of mandate to reduce traffic and improve air quality.   The first one so far is the San Francisco Bay Area Air Quality Management District.  San Francisco Bay Area employers with 50 or more full-time employees within their district’s geographical boundaries are required to register and offer pre-tax commuter benefits to their employees.  This became effective last month (September 30, 2014).

So be prepared and keep your eyes open as more cities and other entities look at this type of program.  Unfortunately, although the tax law that permits these types of savings is on the federal level, the mandates never comes on the federal level. Unlike other countries who mandate these types of national benefits on the national level the U.S. does not.  The result is that employers will have to work through hodgepodges of separate entities with separate requirements.  Information on each of the mandates is provided below.

New York City

San Francisco (City)

San Francisco Bay Area

Washington D.C

The social security wage base for 2015 will be $118,500.  It was estimated to be as high as $119,100 in July.  This is up from $117,000 for this year.