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.

white paper disaster payments 2016

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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106 reimbursements of premiums for participating in a wellness program if the premiums for the wellness program were originally made by salary reduction through a section 125 cafeteria plan?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income reimbursements of premiums for participating in a wellness program if the premiums for the wellness program were originally made by salary reduction through a section 125 cafeteria plan.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.

 

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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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California Enacting Electronic Filing Requirement for All Employers

The state legislature has passed AB 1245, a bill that requires California employers of 10 or more employees to submit quarterly payroll tax returns and pay the associated payroll taxes electronically over the California Employment Development Department website starting in 2017. The bill also requires all employers to file and pay electronically effective January 1, 2018. The bill awaits the governor signature and he is expected to sign it.

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KY Unveils WRAPS

The Kentucky Department of Revenue has launched a new online personal income tax withholding return and payment system (WRAPS). Employers can use WRAPS to file returns (annual, quarterly, monthly, and twice-monthly returns), view and amend previously filed online returns, request refunds, and pay withholding tax using the enterprise electronic payment system.

IRS Releases Info on Third-Party Sick Pay Recap Form

The IRS has released Notice 2015-06 which describes the rules for filing Form 8922, Third-Party Sick Pay Recap. This is an annual form that must be filed with the IRS which replaces the third-party sick pay recaps that were filed with the Social Security Administration. Form 8922 is used to report total amounts of certain sick pay paid to employees by a third party.

Friday is Round-Up Day

Once again, Friday is Round-Up Day.  Here are all the various news releases from the IRS, DOL and the states that have come across my desk this week:

IRS: The IRS has corrected and re-issued Pub 509 for 2015. There were errors in the deposit schedule on page 11. You should download the new version as soon as possible.

DOL: the Department of Labor and the New Hampshire Department of Labor have signed an MOU with the goal of preventing the misclassification of workers to anything other than employees, such as independent contractor. Could audits be on the horizon?

California: The state has released the Method A and Method B withholding tables for 2015.

Kentucky: Updated wage-bracket withholding tables and the computer formula for 2015 have been released and are posted to the department’s website.

Maine:

  • 2015 withholding tables have been issued and are now available.
  • SUI: The rates will be nudging up slightly for 2015 under Rate Schedule D but the wage base will remain $15,000. Tax rates will range from 0.74% to 6.86% and employers will continue to pay the additional 0.06% Competitive Skills Scholarship Fund surcharge for each quarter.

Maryland: The Comptroller’s Office has released the 2015 income tax withholding percentage and regular methods tables.

Michigan: Effective with the first quarter of 2015 all Michigan employers must file their quarterly contribution and wage reports electronically over the Michigan Unemployment Insurance Agency’s (UIA) Michigan Web Account Manager.

Minnesota: The SUI taxable wage base will increase to $30,000 for 2015. This is up from $29,000 for 2014.

Missouri: The state’s minimum wage will increase to $7.65 per hour effective January 1, 2015.

Montana: the state has announced its SUI taxable wage base for 2015. The taxable wage base will be $29,500. This is an increase of $500 from the 2014 wage base amount of $29,000.

New Mexico: The SUI taxable wage base will remain $23,400 for 2015.

Ohio: Looks like the SUI rates will be increasing in 2015. The taxable wage base will stay the same for 2015 at $9,000. However the legislature is looking at either raising the rates higher or increasing the taxable wage base above $9,000. So stay tuned for this one.

Rhode Island: My sources are telling me that the state has announced its SUI, SDI and JDF wages bases and rates for 2015. They are:

  • SUI Wage base: $21,200 for 2015. Up from $20,600 for 2014. For those that have an experience rating of 9.79% or more the wage base is $22,700.
  • SUI Tax rates: will continue on Rate Schedule I.

Wisconsin: Publication 117 Guide to Wisconsin Wage and Information Returns has been updated and posted to the department’s website.

That’s it for this edition of Round-Up Day.  Join us again next Friday!