White Paper for the Month: Educational Assistance

My white paper for September is on educational assistance.  How to properly track and tax this benefit is paramount to ensure compliance.  Hope you find it useful.

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Beginning in October we will go back to more frequent white papers.  We do them monthly during the summer as it is usually a slow time of the year for payroll and we all want to enjoy the summer off.  But as year end begins to approach we will be focusing our white papers on preparing for it.

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White Paper: Disaster Payments and the IRS

We are always hearing in the news about the latest disaster in the nation. Whether it be wild fires in California or flooding in Texas. Natural disasters do happen and can be annual occurrences in some parts of the nation.  When this happens, it is natural to want to help those individuals who are personally affected especially if it strikes close to home like in the case of a co-worker.  When a co-worker loses a home to a wild fire or must move out due to flood damage even employers want to help out.  But when an employer wants to help, does that change the nature of the disaster grantassistance. In other words,  if co-workers take up a collection it is one thing, but what if the employer gives the employee a grant to help cover the costs not reimbursed by insurance? Is it then taxable income and taxes must be deducted? Actually, it may not have to be. Our white paper this time is on Handling Disaster Relief Payments in Payroll.  It explains how and when these types of payments can be made and the taxation requirements.  We hope you find it useful.

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This Week’s White Paper–Employee Achievement Awards

Taxing awards to employees is always a tricky business.  Is it taxable or not?  If I take taxes out will that diminish the award or the employee’s moral over receiving it? Unfortunately, we sometimes can’t take that into consideration.  The IRS says it is taxable, so we tax.  But sometimes the IRS says it is not taxable.  Case in point, employee achievement awards. Given for length of service or safety, these awards can be given without adding it as income to the employee’s wages if done correctly. Of course, no cash or gift certificates. It must be tangible personal property like a pin for years of service or a plaque for safety.  Our white paper this week deals with when to tax and when not to tax employee achievement awards. We hope you find the information useful.  You can request your copy of our white paper on our website.

 

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Company Cars Part 2

Our free white paper this week is the second of our two-parter on the personal use of a company car.  This time we are doing the math.  Yes unfortunately, math is involved when having to determine the taxable wages.  But it is not the only thing needed to do the computations. Vehicle values and vehicle logs are also needed, depending on the method chosen.  You also need to determine the proper method based on the value of the car and the status of the employee.  We hope you find the white paper useful. It can be requested on our website.

 

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Taxation of Wellness Programs

The Office of Chief Counsel of the Internal Revenue Service has issued a memorandum on “Tax Treatment of Wellness Program Benefits and Employer Reimbursement of Premiums Provided Pre-tax Under a Section 125 Cafeteria Plan”.  Not quite a catchy title I admit but it does contain guidance that is useful.  The two questions  that were at issue are as follows:

  1. May an employer exclude from an employee’s income under section 105 or section 106 cash rewards paid to an employee for participating in a wellness program?
  2.  May an employer exclude from an employee’s income under section 105 or section 106 reimbursements of premiums for participating in a wellness program if the premiums for the wellness program were originally made by salary reduction through a section 125 cafeteria plan?

The conclusion reached by the Chief Counsel was no on both counts. 1. An employer may not exclude from an employee’s gross income payments of cash rewards for participating in a wellness program. 2. An employer may not exclude from an employee’s gross income reimbursements of premiums for participating in a wellness program if the premiums for the wellness program were originally made by salary reduction through a section 125 cafeteria plan.

For those of you who need to research this closer I included the link to the memorandum issued on April 14, 2016 and released on May 27, 2016.  They review three different situations and then provide the law and analysis you may need if this affects any benefits you are offering.

 

Last chance to register for early-bird pricing for our next webinar How to Finally Write Those Payroll Procedures.  Early-bird pricing of only $99 ends at 5pm PDT today.

 

This Week’s White Paper-Personal Use of a Company Car Part 1

A common benefit in many U.S. companies today is the use of a company owned car. However, though a common benefit, an employee’s personal use of such a company owned and provided vehicle is generally a taxable fringe benefit and the taxation regulations can be extremely complex. The IRS provides several different valuation methods that employers can use to determine the value of their employee’s personal use.  This two-part white paper discusses the taxation requirements and the different methods to determine taxable wages authorized by the IRS for the personal use of a company car.  This week, Part one discusses the general taxation and other requirements when an employee has use of a company car. Next week, Part two discusses calculating the taxable wages using the IRS methods. To request our white papers simply go to our website.

 

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This Week’s White Paper

Our latest white paper is now available.  This week the topic is paying deceased employees.  A sad topic to be sure but one the payroll department must deal with.  And of course, during this tough time, the IRS wants things to be handle differently than a normal paycheck.  Check out our website and sign up for this white paper today.  It will be available until Friday at 5 pm pacific time.

Contact Congress Now About Multistate Taxes!

As most payroll professionals are aware, having employees who travel to various states can be a logistical nightmare when it comes to taxation.  Even an hourly employee traveling for a two-day training on their payroll software could create a taxation situation requiring hand calculation of taxes, and the employee having to file a non-resident tax return.  This is the mobile workforce we live with today.  And it is getting worse as more and more employees are traveling for their jobs. But you have a chance to do something about this because it doesn’t have to be this cumbersome for payroll if Congress passes the Mobile Workforce State Income Tax Simplification Act. This bill establishes a 30-day threshold before taxes are required.  This ensures that state and local governments get their fair share of taxes when an employee works in a state on a regular basis, but doesn’t require an employee who only goes to that state for a 2-day conference to pay taxes.   The Government Relations Committee of the American Payroll Association is helping to promote this new bill. It is asking payroll professionals to contact their Senators and Representatives and ask for their support on this bi-partisan bill.  Because they know how busy payroll is, they have made it very simple for you.  All you need to do is to click here. This will take you to their automated page where you just fill in your contact info and it creates the letters for you.  Then your can send as an email or print and mail out yourself.  It even allows you to add your own comments. Let’s help ourselves in payroll by helping to pass this much needed legislation.

Form W-4 Exempt Error…Whose at Fault? Who Should Pay?

The Form W-4 is one of the basic forms that payroll must handle during the course of a normal payroll processing. But that doesn’t mean it is not an important document that needs to be processed with care and diligence.  And as with all things, payroll is human and can make mistakes.  But if a mistake is made on inputting a Form 2016 form W-4 face onlyW-4–say going from exempt back to having taxes withheld– who should “pay” for the error…the employee who didn’t catch the error for the entire tax year, or the payroll person (employer) who made it and didn’t follow up with an edit?  This is one of those questions that seems like it can go either way.  For some will respond (usually payroll professionals) by saying that the employee should have noticed that taxes were not being withheld and said something before the end of the year.  But others (usually the employee) will say it is payroll’s fault therefore they should be responsible for my taxes being correct since I did submit a valid Form W-4 as required by the IRS.   It can be argued that since the employee was not deprived of any money he should have the means to pay his taxes. However, that being said, the catch is if the employee is underwithheld the IRS can assess a penalty against the taxpayer (employee). In turn, the taxpayer (employee) could report the employer is at fault for failing to withhold. Under a IRS Office of Chief Counsel letter released on 9/30/11 it appears the IRS would side with the employee as regards to the penalties. See the excerpt from the letter below.

So what is the answer to the question?  Unfortunately it is the same as with all payroll questions…avoid making the mistake in the first place.  Don’t take the “easy” tasks for granted. Have edits in place to ensure that all Forms W-4 are audited before and after they are input into the payroll system.  And as I have always done on my payrolls after finding out that my staff has made such mistakes, implement a program to verify all exempt employees each quarter not just unless the employee complains. I have found that running a list of exempt employees each quarter and taking the extra time to verify they still want to be exempt goes a long way towards catching these errors.  This is especially true during this time of the year when many employees who claimed exempt in 2015 are not doing so in 2016. For this is when the errors are more likely to occur.

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The Holidays are Upon Us and for Payroll That Could Mean Taxing Gifts

‘Tis the season for celebrating.  Office holiday parties, year end bonuses and most of all gifts from the company.  Maybe a $25 gift card to help with the holiday dinner or a nice ham or turkey.  The idea of getting something from the boss is a joyous and wonderful idea for most American workers.  But to payroll, the giving of gifts to employees means only one thing, the annual argument over taxation!

The Internal Revenue Code (IRC) requires that any payment made to an employee that is cash or the cash equivalent is taxable wages to the employee.  As stated on the IRS website “Cash or cash equivalent items provided by the employer are never excludable from income… Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable.”

Unfortunately payroll gets to play “The Grinch” when it comes to taxing gift certificates.  But what about an actual ham or turkey or other such item?  Do we have to tax that as well?  On that one we get to play Santa!  No taxation is required on holiday gifts with a low fair market value such as a ham or turkey.

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