2015 Inflation Adjusted Items from the IRS

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:

 

Type of Coverage MinimumAnnualDeductible MaximumAnnualDeductible MaximumAnnualOut-of-Pocket

Expenses

Self-only $2,200 $3,300 $4,450
Family $4,450 $6,650 $8,150

 

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.

Overtime Rules: Some are still working on the basics

When I decided to start blogging I had to make a decision. Do I just blog the updates or do I take on issues that I feel are important.  I made the decision that I would from time to time, when I had a slow news day, take on issues that I feel are important from a payroll point of view.  And today is one of those days.  Overtime is a basic right for the workers of this country and has been for over 75 years. Yet, it still never ceases to amaze me how many companies in this country still do not understand the basics of calculating overtime and paying employees properly. The law (FLSA) currently requires that an employee must be paid 1 1/2 times their regular rate of pay for all hours worked in excess of 40 hours in a workweek. When Secretary of Labor Francis Perkins worked on getting the FLSA passed back in 1938 she basically created the term regular rate of pay.  It never actually meant the rate at which you are normally paid–but was a combination of many different factors to arrive at the rate.  For example if an employee is paid $10 an hour normally and gets a bonus or a sales commission the overtime is not going to be based on $10.00 an hour but a calculated rate that takes this type of payment into account. That portion of the law has not been altered or changed in any way since 1938.  And according to the latest press release from the Department of Labor (DOL) another company–in this case AT&T Prime Communications LP has also gotten a public lesson on how to calculate overtime. And after this math lesson the company paid $122,254 in back wages to 255 employees.  In their press release on the investigation the DOL wrote: “This was a systemic, corporatewide issue that affected workers throughout the country,” said Cynthia Watson, regional administrator for the Wage and Hour Division in the Southwest. “The FLSA has been in effect for 75 years, and employers are responsible for knowing and following the laws that apply to their businesses.”

And that is the way I feel.  Overtime is not some new law that we are still working out the nuances of and it will take a while.  I would find it remarkable if there were still a lot of people working in a company or in charge of one that was alive and working  prior to the FLSA going into effect. We all grew up working under it. So come on employers out there–get the basics of overtime right.  It is the least you can do for your workers and for yourselves.  Remember along with those back wages can come penalties, fines and interest!

What Goes Around Comes Around

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.

 

NY Is Going Electronic in 2015

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.

For withholding tax returns due on or after April 30, 2015, you must electronically file and pay your withholding tax returns electronically.  Filers of paper returns may be subject to penalties and delays in processing.

The department offers three methods for electronically filing withholding tax returns:

  • Tax Department Web File – You can make withholding payments, file withholding tax returns, and report wage and UI (unemployment insurance) information.
  • Tax Department Web upload – The fastest and easiest way to make withholding payments, file returns, and report withholding tax, wage, and UI information.
  • FSET compatible software – Some commercially available software allows you to use the FSET (Federal/State Employment Taxes) program to file withholding returns and report wage and UI information.

For more information see the department’s website

2015 Social Security Wage Base–The Details

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.

IRS Releases Pension Plan Limits for 2015

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

 

Transportation Benefits: The Road is Starting to be More Traveled

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

Weekly SUI Catch Up

As promised when I have the room in a blog week I will try to catch up on all the SUI wage bases and rates announcements or other SUI related news that comes across my desk since the previous update has been posted.  So here is what has come in since my last update:

Alaska: The state has announced that the SUI rates will be reduced in 2015 due to a stronger economy and legislation passed in 2013.  The actual rates and the wage base will not be released until December.

Arkansas:  According to my sources Arkansas has repaid its remaining federal unemployment insurance loan balance as of October 1 and will not be borrowing again this year.  That means that employers in Arkansas will see the return of the minimum net FUTA tax rate of 0.6%.

Delaware:  My sources are telling me that the SUI taxable wage base will remain $18,500 for 2015.  The tax schedule will also remain the same with the rates ranging from 0.3% to 8.2%. The special training tax assessment will also continue to be .085% for 2015. The SUI tax rate notices will go out to employers in mid-December.

Missouri:  The SUI taxable wage base will remain $13,000 for 2015.

New Hampshire:  The Governor’s office has announced that a “fund balance reduction” will go into effect for the fourth quarter of 2014.  The result should be a 0.5% reduction in their SUI rates beginning October 1st.

Rhode Island:  The state is announcing that their outstanding federal loan will be repaid before the November 10th deadline.  This will allow the net FUTA tax rate to return to 0.6% for calendar year 2014.

Wisconsin:  rates for 2015 will continue to be based on the Rate Schedule A but will range from 0.27% to 12% for small employers and 0.70% to 12% for large employers.

We should have another update for you next week covering all that comes in after today.

 

 

Independent Contractor vs Employee–Another Round

In the never ending battle between classifying an worker as an independent contractor or as an employee, the state of Alabama has weighed into the ring.  Officials of the U.S.  Department of Labor’s Wage and Hour Division and the Alabama Department of Labor have signed a memorandum of understanding (MOU) to protect the rights of employees by preventing their misclassification as something other than an employee–such as an independent contractor.  This MOU represents a new effort on the part of the agencies to work together to protect not only the workers’ rights but those of the employers who follow the regulations but may be undermined economically by employers who do not. This MOU is only the latest in a long string of 15 MOUs between the states and the DOL with the goal of preventing, detecting and remedying employee misclassification.  States that have signed an MOU with the DOL include California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington.  For more information check out the Wage and Hour Division’s webpage on Employee Misclassification as Independent Contractors.