2016 employment tax year in review - building a better...
TRANSCRIPT
2016 employment tax year in review
2 | 2016 employment tax year in review
On November 30, 2016, a six-member panel of Ernst & Young LLP’s experienced Employment Tax Services professionals shared their perspectives and insights on new developments and compliance considerations for year-end and 2017.
Highlights from the webcast and its key takeaways follow.
2016 employment tax webcast at a glance• 2016 Form W-2 reporting changes, including earlier filing deadlines
• State Form W-2 due dates
• Penalties increase for Form W-2 and other information reporting errors
• Form W-2 de minimis error safe harbor has significant limitations
• 2016 Affordable Care Act information reporting relief
• Make note of these key state and local income tax developments
• Top 10 employment tax questions asked by webcast participants
• Top 10 Affordable Care Act questions asked by webcast participants
• Results of webcast polling questions
A replay of the 2016 employment tax year in review webcast is available here.
Download our 2016 payroll checklist and access other year-end essentials here.
Earlier Form W-2 filing due date starts this yearStarting with 2016 returns required to be filed in 2017, Forms W-2 and Forms 1099-MISC reporting non-employee compensation, whether filed on paper or electronically, are due January 31. The filing deadline for other information returns, including Forms 1099-MISC other than those for non-employee compensation, is unchanged.
Also starting with filings due after January 1, 2017, extensions of the deadline to file Forms W-2 with the Social Security Administration (SSA) are no longer automatic, and only one 30-day extension will be granted. In reviewing Form 8809, Application for Extension of Time to File Information Returns, the IRS will grant extensions only in extraordinary circumstances or catastrophe, and employers granted extensions must demonstrate that employees paid the tax by using Form 4669, Statement of Payments Received, and Form 4670, Request for Relief of Payment of Certain Withholding Taxes. (2016 General Instructions for Forms W-2 and W-3, page 1.)
A number of states conformed to the new federal rule by also accelerating their Form W-2 filing due dates. The chart of 2016 state Form W-2 filing due dates is shown on page 3.
Highlights of Ernst & Young’s ‘2016 employment tax year in review’ webcast
3January 2017 |
State due dates for providing and filing Forms W-2 (Dates that differ from federal are shown in bold)
State Form W-2 due dates* for tax year 2016State/jurisdiction Employee copy due date State filing due date
Alabama January 31 January 31
Arizona January 31 February 28
Arkansas January 31 February 28
California** January 31 January 31
Colorado** January 31 January 31
Connecticut January 31 January 31
Delaware January 31 January 31
District of Columbia January 31 January 31
Georgia January 31 January 31
Hawaii January 31 February 28
Idaho** January 31 January 31
Illinois** January 31 February 15
Indiana January 31 January 31
Iowa** January 31 January 31
Kansas** January 31 February 28
Kentucky January 31 January 31
Louisiana January 31 January 31
Maine** January 31 February 28
Maryland January 31 January 31
Massachusetts January 31 January 31
Michigan January 31 February 28
Minnesota January 31 February 28
Mississippi January 31 January 31
State Form W-2 due dates* for tax year 2016State/jurisdiction Employee copy due date State filing due date
Missouri** January 31 February 28 (January 31 effective tax year 2017)
Montana January 31 February 28
Nebraska February 1 February 1
New Jersey** February 15 February 28
New Mexico** January 31 February 28
New York** February 15 January 31
North Carolina January 31 January 31
North Dakota** January 31 January 31
Ohio** January 31 January 31
Oklahoma** January 31 February 28
Oregon** January 31 January 31
Pennsylvania January 31 January 31
Puerto Rico January 31 January 31
Rhode Island January 31 January 31
South Carolina January 31 January 31
Utah January 31 January 31
Vermont January 31 January 31
Virgin Islands January 31 January 31
Virginia January 31 January 31
West Virginia** February 15 February 28
Wisconsin January 31 January 31
Based on Ernst & Young LLP survey results as of January 2017.
Dates that do not match the tax year 2016 federal due date are shown in bold.
* It varies from state to state whether the deadline is extended to the next business day when it falls on a Saturday, Sunday or holiday. Check with the state taxing authority for more information. There is no state income tax in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming. New Hampshire and Tennessee require income tax only from interest and dividends.
** See state notes below.
California. Forms W-2 are not filed with the state. Instead, Form DE-9C is used to report individual personal income tax wages and withholding on a quarterly basis.
Colorado. For electronic filing, the annual reconciliation form is required if additional tax is due or if the employer is expecting a refund. Otherwise, by filing electronically, the employer is precluding itself from filing the annual reconciliation form. Paper filers must file the reconciliation form.
Idaho. Effective with calendar year 2016, Idaho employers are required to submit the annual withholding tax reconciliation form and Forms W-2 to the State Tax Commission by January 31 rather than the previous due date of the last day of February. The new law provides a five-business-day window after the new due date for an employer to correct errors in the electronic file received timely by the Tax Commission.
Illinois. The annual reconciliation form is no longer required. Employers must file Form W-2 information electronically with the SSA, and all payroll service providers are required to file electronically with the Illinois Department of Revenue by February 15. Employers not required to file electronically with the SSA need not submit Forms W-2.
Iowa. Through calendar year 2015, Iowa did not require Forms W-2 to be filed with the VSP Annual Reconciliation. Effective with calendar year 2016, employers with 50 or more employees are required to submit Forms W-2 electronically with Form VSP by January 31. (Employers with fewer than 50 employers are not required to file Forms W-2 for calendar year 2016.) Effective with calendar year 2017, due in 2018, all employers will be required to file Forms W-2 electronically with Form VSP. A waiver from the requirement to file electronically may be requested until calendar year 2018, due in 2019, for cases of hardship.
4 | 2016 employment tax year in review
Highlights of Ernst & Young’s ‘2016 employment tax year in review’ webcast Continued
Kansas. According to a Department of Revenue representative, Kansas does not plan to change its Form W-2 deadline to January 31 to match federal.
Maine. Employers report withheld state income tax on the quarterly tax report. A separate reconciliation return (Form W-3ME) must be filed by February 28. Employers of 250 or more employees must file Forms W-2 and the annual reconciliation (Form W-3ME) electronically with Maine Revenue Services. For employers of fewer than 250 employees, Forms W-2 are not required unless the employer fails to report the W-2 information quarterly. Calendar year 2016 Forms W-2 filed electronically are due by February 28, 2017. This deadline will not be extended to March 31, 2017. The Department plans to introduce legislation in 2017 to change the deadline to January 31, beginning for calendar year 2017 (due in 2018).
Missouri. Effective January 1, 2018, legislation (H.B. 1582) changes the due date for employers to file Forms W-2 with the Missouri Department of Revenue to January 31. As a result, state copies of calendar year 2017 Forms W-2 will be due January 31, 2018. The deadline for filing state copies of Forms W-2 remains at February 28, 2017, for the submission of calendar year 2016 Forms W-2 to the Department.
New Jersey. The statutory deadline to file is February 15, but administrative policy extends the deadline to the last day of February. The deadline for submitting calendar year 2016 Forms W-2 did not change to January 31 to match federal.
New Mexico. Employers that file a Form ES-903, Wage and Contribution Report, with the New Mexico Workforce Solutions Department or Form TRD-31109 with the Taxation and Revenue Department do not need to submit Forms W-2 or the annual reconciliation form to the state.
New York. New York wage and tax information is reported quarterly on Form NYS-45. Employers do not submit Forms W-2 to the state.
North Dakota. State law requires that North Dakota tax deadlines match federal deadlines; as a result, the Form W-2 filing deadline is January 31, starting with calendar year 2016, due in 2017.
Ohio. Currently, only employers of 250 or more employees must file Forms W-2 magnetically. Smaller employers are not required to submit paper copies of Forms W-2 (state Form IT-2) to the Department of Taxation but must continue to maintain W-2 records for four years. Effective January 1, 2015, Ohio employers are required to file all withholding tax returns except Forms W-2 electronically. Proposed regulation changes would require all Ohio employers to file Forms W-2 electronically; however, these changes are not expected to be in effect for calendar year 2016.
Oklahoma. Legislation enacted in early 2016 (H.B. 2775) requires that employers electronically file an annual withholding tax reconciliation return and corresponding Forms W-2 by the February 28 following the tax year. The change is effective for calendar year 2016, with the annual reconciliation and Forms W-2 due by February 28, 2017. According to an Oklahoma Tax Commission (OTC) Tax Policy and Research representative, the OTC currently has no plans to conform to the new federal Forms W-2 deadline of January 31. (Telephone conversation, April 27, 2016.) Prior to calendar year 2016, Oklahoma employers were not required to submit Forms W-2 or an annual reconciliation return to the OTC.
Oregon. Forms W-2 are filed electronically only; paper W-2s or other forms of media are not accepted.
West Virginia. All employers, including those that file the Forms W-2 electronically with the West Virginia State Tax Department, must also file Form WV/IT-103, Annual Reconciliation of West Virginia Income Tax Withheld. Failure to submit Form WV/IT-103 each year may result in the denial of Letters of Good Standing and prevent potential refund requests from being processed. Also, West Virginia law allows for a penalty of $25 per employee for failure to timely file this information. The state will not match the new federal Form W-2 deadline of January 31 for calendar year 2016.
Form W-2 verification code pilotThe IRS announced that it is expanding its efforts to combat tax-related identity theft for the 2017 filing by, among other activities, continuing its Form W-2 verification code program.
The verification code pilot was first conducted in the 2016 filing season and involved 2 million employees whose 2015 Forms W-2 contained a 16-digit alphanumeric code. If the verification code appeared on employees’ Form W-2, they were required to provide the code when filing their Forms 1040 electronically. The 2017 pilot will expand to 50 million Forms W-2 filed in 2017 (for tax year 2016).
For now, only certain payroll service providers (PSPs) will participate in the pilot.
How verification codes will work. The verification code is 16 digits formatted as four groups of alphanumeric characters (XXXX-XXXX-XXXX-XXXX). This code will appear in a separate box on some versions of the Form W-2 prepared by PSPs participating in the pilot.
Employees will see the verification code on Copies B and C of Form W-2. But it will not be included on Copy A filed with the Social Security Administration, nor will it affect state and local income tax returns or paper federal returns.
The IRS states that for the purposes of this pilot, omitted and incorrect W-2 verification codes will not delay the processing of a tax return.
Forms W-2 containing the new verification code will include special instructions for taxpayers and tax preparers, specifically:
• If the verification code field is populated, enter this code when your tax return preparation software requests it. It is possible your software or preparer will not request the code. The code is not entered on paper-filed returns.
• Some Forms W-2 that employees receive will have a blank “Verification Code” box. These taxpayers do not need to enter any code data into their tax software product.
The IRS will analyze this pilot data in a “test-and-learn” review to see whether it is useful in evaluating the integrity of W-2 information.
Puerto Rico was first to use authentication codes to combat tax fraud. The IRS is not the first to consider using system-generated codes to validate the authenticity of a Form W-2. Effective for tax year 2013 (filed in 2014), the Puerto Rico Department of Treasury requires that Form W-2PR, filed electronically with the Department, include a confirmation number given by the system after the electronic submission. The confirmation number consists of six digits starting with one letter. The file must be uploaded first to obtain the confirmation number from the system. The Department does not accept Forms W-2PR without the confirmation number. Handwritten confirmation numbers automatically render the forms invalid.
5January 2017 |
Penalties increase for Form W-2 reporting errorsOn June 29, 2015, President Barack Obama signed into law the Trade Preferences Extension Act of 2015 (H.R. 1295; Public Law No: 114-27), which included provisions that more than doubled the penalties for late or incorrectly filed information returns, including Forms W-2, 1099 and those required under the Affordable Care Act (i.e., the 1094 and 1095 series).
The increased penalties were effective with returns filed after December 31, 2015, and are indexed each year for inflation.
The penalties that apply to payee statements and information returns required to be filed in 2016 and 2017 are shown in the chart below.
Tips to avoid Form W-2 filing errors • Test Form W-2 files using SSA’s
AccuWage
• Review the SSA’s Form W-2 file layout requirements here
• Verify that you are using the correct rates and limits for 2016; our special report is here
If filed: Maximum for forms due Jan. 1, 2016, to Dec. 31, 2016
Maximum for forms due Jan. 1, 2017, to Dec. 31, 2017
Maximum annual for forms due Jan. 1, 2016, to Dec. 31, 2016
Maximum annual for forms due Jan. 1, 2017, to Dec. 31, 2017
1 to 30 days late $50 $50 $529,500 $532,000
More than 30 days late but before Aug. 1
$100 $100 $1,589,000 $1,596,500
On or after Aug. 1 $260 $260 $3,178,500 $3,193,000
Notes: The penalty for intentional disregard increased from $520 to $530 per return. There is no maximum penalty. Penalties are indexed annually for inflation.
6 | 2016 employment tax year in review
Form W-2 de minimis error safe harbor has significant limitationsIn general, businesses are subject to penalties under IRC §6721 and §6722 for errors on information returns and statements they fail to correct. (See page 5 for the information reporting penalties that currently apply.)
In consideration of the likely increase in corrected Forms W-2 as a result of accelerating the filing due date to January 31 effective with forms required to be filed after December 31, 2016 (see page 2), the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) contains a provision waiving the penalties for incorrect information returns and statements if the errors are de minimis. Specifically, the de minimis error safe harbor applies to an incorrect dollar amount of no more than $100 and a withholding tax error amount of no more than $25.
The PATH Act stipulates, however, that taxpayers may veto the use of safe harbor by the business. If they do, the business must file corrected information returns and provide corrected statements for such taxpayers.
In Notice 2017-09, the IRS provides long-awaited guidance on the safe harbor from the requirement to file corrected information returns and provide corrected statements (e.g., Forms W-2) for de minimis errors. This guidance highlights the significant limitations in taking advantage of the safe harbor, particularly a taxpayer’s right to require the correction of de minimis errors.
The guidance applies to information returns required to be filed and information statements required to be provided after December 31, 2016. Written comments are requested by April 24, 2017.
Circumstances under which the safe harbor does not applyThe IRS clarifies that the de minimis error safe harbor applies only to inadvertent errors on information returns and statements and not when the business has intentionally misreported a dollar amount, whether or not it is de minimis. A pattern of noncompliance indicates intention to misreport for these purposes.
In addition, the de minimis error safe harbor applies only to errors on information returns filed or statements provided. It does not apply if the business failed entirely to file a return or furnish a statement, even if the statement or information return would report dollar amounts ºf $100 or less or tax withheld of $25 or less.
Highlights of Ernst & Young’s ‘2016 employment tax year in review’ webcast Continued
Not correcting Forms W-2, whether or not allowed under the safe harbor, can create matching differences with employment tax returns (e.g., Form 941), resulting in notices from the Social Security Administration and IRS under the Combined Annual Wage Reporting (CAWR) program. In fact, the IRS states in Notice 2017-09 that in consideration of the CAWR program, employers are encouraged to correct all Form W-2 reporting errors, even those that are de minimis.
Before choosing to take advantage of this safe harbor, businesses must consider the administrative costs associated with managing and accommodating taxpayer “opt-out” elections.
7January 2017 |
IRS guidance governing taxpayer election for correction of de minimis errors
In Notice 2017-09, the IRS clarifies the rules and guidelines governing the use of the safe harbor relief penalties for information statements and returns as follows.
• 30 days to make de minimis corrections requested by taxpayers. Unless other filing deadlines apply, if the payee (e.g., employee) elects to have de minimis errors corrected, the business has 30 days from the day such election is made to furnish a corrected statement and file a corrected return. Corrections made within the 30-day deadline are not subject to penalties under IRC §6721 and §6722.
• Manner for taxpayer election to receive corrections. Businesses may prescribe any reasonable manner for taxpayers to elect to have de minimis errors corrected, including phone, written statements or online; however, online may not be the exclusive method available. If the business has not prescribed a manner for making the election, the taxpayer should provide a written statement to the businesses using the business name and address furnished on the information statement. Additionally, the business may not impose prerequisites, conditions or time limits on the payee’s ability to request a corrected statement, other than prescribing a reasonable manner for making the election.
• Revocation of election to receive corrections. Payees can revoke their election to receive corrections of de minimis errors by providing written notice to the business.
• Timing to make elections to receive corrections. Payees may make an election to receive correction of de minimis errors pursuant to statements required to be filed in the calendar year of the election and succeeding calendar years. Payees are also allowed to make the election in a calendar year preceding the calendar year when the payee makes the election.
• Corrections allowed even if not elected. Businesses may file corrected information returns and provide corrected statements even if employees do not elect to receive them.
• Information required within the payee election. To provide notice of the election to receive corrections of de minimis errors, the payee must provide the business with the following information:
1. A clear statement that the payee is making the election
2. The payee’s name, address and taxpayer identification number (TIN)
3. Identification of the type of payee statement(s) and account number(s), if applicable to which the election applies (e.g., Form W-2, Form 1099-DIV) if the payee wants the election to apply only to specific statements
4. A statement that the election applies only to payee statements required to be furnished in that calendar year if the payee wants the election to apply only to the year when the payee makes the election
If the payee does not identify the type of payee statement and account number or the calendar year to which the election relates, the payer must treat the election as applying to all types of payee statements the payer is required to furnish to the payee and as applying to payee statements required to be furnished in the calendar year when the payee makes the election and in any succeeding calendar years.
Notice 2017-09 does not explicitly state that businesses must notify payees each time they intend to apply the de minimis error safe harbor. Instead, the IRS states that future regulations will include the requirement that businesses notify taxpayers of the de minimis error safe harbor and the election for the safe harbor not to apply. In advance of the upcoming regulations, businesses should take a conservative approach and notify taxpayers in each instance they intend to apply the safe harbor and provide time for taxpayers to make their elections.
8 | 2016 employment tax year in review
Recordkeeping requirements
Businesses must retain copies of any taxpayer election, or revocation of an election, for as long as this information is relevant in the administration of any internal revenue law.
Request for comments
The IRS is requesting comments by April 23, 2017, on the guidance provided in Notice 2017-09, as well as comments on potential abuses of the de minimis error safe harbor and any information returns or payee statements that should be exempt from the safe harbor provisions.
Comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2017-09), Room 5205, P.O. Box 7604, Ben Franklin Station, Washington, DC 20224. Alternatively, comments may be hand-delivered between 8:00 a.m. and 4:00 p.m. Monday through Friday to: CC:PA:LPD:PR (Notice 2017-09), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, DC. Comments may also be submitted electronically via the following email address: [email protected]. Commentators are asked to include “Notice 2017-09” in the subject line of any electronic submissions.
Ernst & Young LLP insightsThe ability of taxpayers to insist on the correction of de minimis errors significantly limits the benefit of this safe harbor; however, it is a restriction intended within the language of the law and not one created by IRS guidance.
Before choosing to take advantage of this safe harbor, businesses should consider the administrative costs associated with managing and accommodating taxpayer “opt-out” elections.
Not correcting Forms W-2, whether or not allowed under the safe harbor, can create matching differences with employment tax returns (e.g., Form 941), resulting in notices from the Social Security Administration and IRS under the Combined Annual Wage Reporting (CAWR) program. In fact, the IRS states in Notice 2017-09 that in consideration of the CAWR program, employers are encouraged to correct all Form W-2 reporting errors, even those that are de minimis.
Notice 2017-09 does not explicitly state that businesses must notify payees each time they intend to apply the de minimis error safe harbor. Instead, the IRS states that future regulations will include the requirement that businesses notify taxpayers of the de minimis error safe harbor and the election for the safe harbor not to apply. In advance of the upcoming regulations, businesses should take a conservative approach and notify taxpayers in each instance they intend to apply the safe harbor and provide time for taxpayers to make their elections.
Highlights of Ernst & Young’s ‘2016 employment tax year in review’ webcast Continued
9January 2017 |
2016 Affordable Care Act information reporting relief
In Notice 2016-70, the Treasury and the IRS provide an automatic extension of the due dates to comply with the Affordable Care Act (ACA) reporting requirements. The due date to furnish individuals the 2016 Form 1095-B, Health Coverage, and the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is extended for 30 days from January 31, 2017, to March 2, 2017.
Like the automatic extension granted for the 2015 information returns, the IRS will not entertain any requests for further extensions of this new blanket deadline.
Unlike last year, the due date to file with the IRS the 2016 Form 1094-B, Transmittal of Health Coverage Information Returns, and the 2016 Form 1094-C, Transmittal of Employer-Provided
Health Insurance Offer, has not been extended. Those dates remain February 28, 2017, for those filing less than 250 forms on paper and March 31, 2017, for those filing electronically. Filers may, however, request an automatic 30-day extension of those deadlines.
In addition, the IRS has stated that penalties will not be imposed on health insurers and employers that make a good-faith effort to comply with the reporting requirements, provided that statements were furnished to individuals and filings were made with the IRS in a timely fashion. This announcement automatically extending the ACA information reporting due dates provides welcome relief to employers and health insurers that are working diligently to comply with the reporting requirements but have found it challenging to collect the volume of data to be reported and imported into the systems by the statutory due dates. Moreover, the application of the good-faith standard to the 2016 information returns is also welcome relief to filers that have found it difficult to keep up with changes in this emerging area of information reporting.
2016 ACA information reporting due dates
ACA information reporting requirement
Self-insured employers and insurance providers Forms 1094-B and 1095-B IRC §6055
ACA-covered employers Forms 1094-C and 1095-C IRC §6056
Who receives the statement/return IRS; individuals who are enrolled in coverage; covered dependents may be included on report for primary insured
IRS; all full-time employees (as defined in IRC §4980H and the underlying regulations); all employees who are offered coverage
Due date to furnish statement to the recipient (i.e., employee or covered individual)
Form 1095-B is due on the extended due date of March 2, 2017 (normally due January 31 of following year)
Form 1095-C is due on the extended due date of March 2, 2017 (normally due January 31 of following year)
Due date to file information return Form 1094-B is due by March 31, 2017, if filed electronically (or February 28, 2017, if filed on paper)
Form 1094-C is due by March 31, 2017, if filed electronically (or February 28, 2017, if filed on paper)
2016 state and local income tax roundupMobile workforce tax compliance is a continued concern as several states maintain their aggressive nonresident income tax withholding audits. State rules vary considerably on the amount of time or wages, if any, that can be overlooked in determining whether a nonresident income tax obligation applies.
The House, but not the Senate, approved federal legislation (Mobile Workforce State Income Tax Simplification Act of 2015, H.R. 2315/S. 386) in 2016 that would have prohibited states from imposing an income tax on wages earned by employees who have spent 30 or fewer days in the calendar year working in a state. The legislation will need to be reintroduced in 2017 for consideration.
The chart at right contains key state and local income tax developments.
2016 state and local income tax changes of note
IndianaEffective in 2017, the three local income tax rates (COIT, CAGIT and CEDIT) are consolidated into one, but the tax that nonresidents pay is increased. (Public Law 243.)
OhioEffective in 2016, the de minimis threshold for nonresident local income tax withholding is increased from 12 to 20 days. The provision applies only to employers that have offices or operations within Ohio. (Sub. H.B. 5.)
MaineEffective in 2017, a 3% personal income tax surcharge applies to individuals earning over $200,000. The surcharge will be used to fund education. (Ballot 2, approved by voters on November 8, 2016.)
West VirginiaEffective in 2016, all employees working within Morgantown, West Virginia, are subject to a service fee of $3 per week to a maximum of $156 per year. (Meeting Minutes, October 20, 2015, Common Council of the City of Morgantown.)
10 | 2016 employment tax year in review
The top 10 employment tax questions from Ernst & Young LLP’s 2016 year-end webcast
IRS Form W-2 box 13 retirement plan checkbox decision chart
Type of Plan Conditions Check Retirement Plan Box?Defined benefit plan (for example, a traditional pension plan) Employee qualifies for employer funding into the
plan, due to age/years of service — even though the employee may not be vested or ever collect benefits
Yes
Defined contribution plan (for example, a 401(k) or 403(b) plan, a Roth 401(k) or 403(b) account, but not a 457 plan)
Employee is eligible to contribute but does not elect to contribute any money in this tax year
No
Defined contribution plan (for example, a 401(k) or 403(b) plan; a Roth 401(k) or 403(b) account; but not a 457 plan)
Employee is eligible to contribute and elects to contribute money in this tax year
Yes
Defined contribution plan (for example, a 401(k) or 403(b) plan; a Roth 401(k) or 403(b) account; but not a 457 plan)
Employee is eligible to contribute but does not elect to contribute any money in this tax year, but the employer does contribute funds
Yes
Defined contribution plan (for example, a 401(k) or 403(b) plan; a Roth 401(k) or 403(b) account; but not a 457 plan)
Employee contributed in past years but not during the current tax year under report
No (even if the account value grows due to gains in the investments)
Profit sharing plan Plan includes a grace period after the close of the plan year when profit sharing can be added to the participant’s account
Yes
Webcast participants again submitted a record number of questions, reflecting the volume and complexity of employment tax developments. Here we feature the panelists’ top 10.
Form W-2 reporting 1. Has the IRS issued guidance yet on the truncation of the
Social Security Number (SSN) on Form W-2?
Answer: No.
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) gives the Internal Revenue Service the authority to allow for the truncation of the SSN on Form W-2; however, to date, the IRS has not issued guidance on this matter. Employers should not truncate the SSN without specific IRS guidance.
2. Do employees need to receive their Forms W-2 by January 31, or do they need to be postmarked by January 31?
Answer: The postmark date is used for timely mailed purposes.
In explaining the due date for furnishing copies of Forms W-2 to employees, the IRS states, “You must furnish Copies B, C, and 2 of Form W-2 to your employees by January 31, 2017. You’ll meet the furnish requirement if the form is properly addressed and mailed on or before the due date.” (IRS Tax Topic 752.)
3. What are acceptable reasons for being granted an extension on the SSA Form W-2 filing due date?
Answer: See below.
The IRS states that it will grant extensions on the Form W-2 filing due date only in “extraordinary circumstances or catastrophe,” and employers granted extensions must demonstrate that employees paid the tax by using Form 4669, Statement of Payments Received, and Form 4670, Request for Relief of Payment of Certain Withholding Taxes.
It seems that the IRS will only consider circumstances such as a natural disaster; office location emergencies, such as a fire; unexpected equipment failures; or similar extraordinary situations. Note also that the IRS will now require the extra step of securing the Form 4669 from affected workers. (2016 general instructions for Forms W-2 and W-3.)
4. Under what circumstances are we required to check “pension plan” in Form W-2, box 13?
Answer: See the chart below.
On page 28 of the 2016 General Instructions for Forms W-2 and W-3, the IRS provides the decision chart below for Form W-2, box 13.
11January 2017 |
5. What date should Forms W-2 be filed if the federal and state filing due dates differ?
Answer: Both filing due dates apply.
If the state requires the filing of Forms W-2, you must meet the state’s specific filing due date. Separately, you are required to file your federal Forms W-2 with the Social Security Administration by January 31.
Third-party sick pay 6. Our employees receive disability pay through the New Jersey
disability insurance fund. Are we required to file a third-party sick pay recap in this case?
Answer: No.
New Jersey employers are not required to file a Form 8922 pursuant to third-party sick payments made from New Jersey’s disability insurance fund. In fact, generally, a third-party sick pay recap is required of the insurance provider only if the client employer is filing Forms W-2 to report the third-party sick pay. See Publication 15-A for more information on the third-party sick pay recap.
If you provided disability benefits to New Jersey employees through a private plan, keep in mind that you may need to give them Form NJ-2440.
7. When is Form 8922, Third Party Sick Pay Recap, required to be filed with the IRS?
Answer: February 28, 2017, for tax year 2016.
The Form 8922 filing due date was not affected by the PATH Act. Accordingly, it must be filed with the IRS on February 28 following the tax year to which it relates. (Form 8922 filing instructions.)
8. If the employer is responsible only for paying the federal unemployment insurance tax on third-party sick pay, is it required to file Form 8922?
Answer: It depends.
Which party files the Form 8922 depends on which Employer Identification Number (EIN) is used on Forms W-2.
• The agent or insurance company files Form 8922 if sick pay is reported on Forms W-2 under the employer’s name and EIN.
• The employer files Form 8922 if sick pay is reported on Forms W-2 under the agent or insurance company’s name and EIN.
See Form 8922 for more information.
9. If we receive a statement of sick payments made by our disability insurance provider, are we, the employer, required to pay both the employee and employer Social Security and Medicare tax?
Answer: No.
The third-party payer of sick pay is required to withhold Social Security, Medicare and, if requested by the employee, federal income tax. The employer pays only the employer portion of Social Security and Medicare and takes a credit on Form 941 for the employer portion paid by the third party.
See our special report on third-party sick pay for more information.
10. If employees pay for their disability insurance premium with post-tax dollars, is their disability pay federally taxable?
Answer: It depends.
For federal tax purposes, third-party sick pay is exempt from federal income tax, federal income tax withholding, Social Security and Medicare if the employee pays 100% of the disability insurance premium. Therefore, if employees’ after-tax contributions represent 100% of the disability insurance premium, their disability pay is exempt from these federal taxes.
12 | 2016 employment tax year in review
Who is covered for ACA reporting purposes? 1. With only 20 employees, do I have to file ACA returns?
You are required to furnish ACA returns and file statements only if you meet the definition of an Applicable Large Employer (ALE). See Question 2. However, since you have fewer than 25 employees, you should consider whether you are eligible for the small business health tax credit.
2. Who is an Applicable Large Employer for 2015 and 2016?
The ACA Employer Shared Responsibility and reporting requirements apply only to ALEs, defined as employers with 50 or more full-time employees or full-time equivalents in the prior calendar year. Keep in mind that the number of employees of legal entities who are members of a “controlled group” is aggregated to determine whether those group members are treated as an “Applicable Large Employer” subject to those reporting requirements. More information is available from the IRS.
3. How is “part-time” defined for ACA purposes?
As you know, IRC §4980H provides penalties on large employers that fail to offer cover to “full-time” employees. We are assuming this question concerns employees to whom offers of coverage need not be provided. Generally, any employee who works on average 30 or more hours per week is deemed full-time for ACA reporting purposes. Guidance on “hours of service,” one part in understanding this classification, is available in the Federal Register.
ACA reporting mechanics 4. If the health insurance provider sends Form 1095-B
to employees, is the employer also required to provide Form 1095-C and file it with the IRS?
Yes. The Form 1095-C tracks offers of coverage made to full-time employees in satisfying the employer mandate and is a determining factor in employees’ eligibility for tax credits for coverage through a marketplace. The 1095-B from the insurance company is sent to employees enrolled in a fully insured plan and shows that the employee satisfies the individual mandate. Employees enrolled in a self-insured plan would see their enrollment (satisfying the individual mandate) on the 1095-C.
5. Who files ACA returns for staffing agency employees?
If the employees hired by the staffing agency could be considered common law employees of the employer, the employer is responsible for offering them coverage and including them in ACA reporting. The determination of whether an individual is a common law employee of the employer or the staffing agency is based on a number of factors and evaluated case by case.
6 If the employer provides benefits to temporary agency employees, is the employer responsible for meeting the ACA obligations?
First, it must be determined whether the employer or the temporary agency is the common law employer of the employees. However, if the employer is found to be the common law employer, those employees can be covered by an offer of coverage made by the temporary agency if certain conditions are met. If the employer is paying premiums to the temporary agency specifically for health insurance for employees (that is, paying more with respect to an employee electing coverage versus an employee declining coverage), generally speaking, the employer is generally the common law employer responsible for providing an offer of coverage and is deemed to have made the required offer.
The top 10 Affordable Care Act questions from Ernst & Young LLP’s 2016 year-end webcastby Alan Ellenby and Ron Krupa, Ernst & Young LLP
13January 2017 |
ACA reporting penalties 7. What are the employer’s responsibilities if the IRS accepts
ACA returns filed with errors?
“Accepted with errors” means the transmission was accepted by the IRS and you have met your reporting obligation. However, employers are instructed that correctable errors* should be acted upon within 30 days after the IRS brings them to the employer’s attention. Despite the 30-day timeline, the IRS will accept corrections for 2015 ACA returns until further notice.
* Some errors — for instance, Taxpayer Identification Number (TIN) validation errors — may not be possible to correct. That might be the case if the Social Security Number (SSN) and name of the individual are correct or, if not correct, conform to the information provided by employees concerning their dependents’ TINs or SSNs.
8. What action will the IRS take pursuant to late or incorrect 2015 ACA statements and returns?
For the 2015 tax year, an employer can be assessed a penalty of up to $520 per failure to furnish and file a required ACA form. The penalty increases to $1,040 per form if the IRS alleges “intentional disregard” of the filing requirements. The IRS has stated that it is still accepting late forms and corrections for the 2015 year.
9. If the employer fails to offer adequate and affordable health coverage, how is the employer shared responsibility payment computed?
On the IRS website, see No. 52 of the ACA questions and answers concerning the calculation that applies for 2016
Marketplace notices 10. To what address are employer Health Insurance Marketplace
notices sent?
Health Insurance Marketplace notices are mailed to the employer address provided by employees when they enroll in coverage through the marketplace. This may not be the address you provide on your Form 1094. The IRS has not yet sent notices of potential assessments for employer shared responsibility excise taxes, but we expect those communications to go to the address on the 1094-C, which is the address used by that legal entity for all its IRS tax filings.
For more information about ACA reporting, contact Alan Ellenby at [email protected] or Ron Krupa at [email protected].
| 2016 employment tax year in review14
2016 year-end webcast polling results
Our 2016 webcast participants provided valuable feedback about three of the year’s hot topics: payroll department impact of earlier Form W-2 due dates, organizational emphasis on unemployment claims management and the frequency that earnings and deduction code tax reviews are conducted.
Here’s what we learned:
81% of 1,659 webcast polling respondents believe that unemployment claims management is extremely or somewhat important.
63% of 1,836 webcast polling respondents said they expect the earlier Form W-2 due dates to increase payroll staff overtime hours in January.
When asked how frequently earning and deduction codes are given a detailed tax setup accuracy review, 67% of 1,469 webcast respondents said this is an annual task, compared with 8% who said this task has never been performed.
https://twitter.com/EYEmploymentTax
For more of our 2016 year-end essentials, visit our website.
Are you ready for the new year?
Forms W-2 mapping
Taxa
bilit
y co
nfigu
ratio
ns
Reconciliation
Contact
For more information please contact:
Kristie LoweryErnst & Young LLPNational Director, Employment Tax Services+1 704 331 [email protected]
Bryan De la BruyereErnst & Young LLPSenior Manager, Employment Tax Services+1 404 817 [email protected]
Tax process review*
Through staff interviews, data analysis and random sampling, our team identifies areas of opportunities and risk involving:
• Cash management• Employee master file and pay/deduction transactions• Recordkeeping, data management and reporting• Federal, state, local and provincial tax reporting• Efficiency/accuracy safeguards• Reconciliation and third-party oversight
Employment Tax (ET) Rapid Assessment™ Tax configuration review
With our ET Rapid Assessment™, businesses can access our secure web-based portal, or schedule an on-location meeting to complete our assessment questionnaire and receive a report highlighting potential risks and opportunities within their employment tax operations. Our team of qualified tax professionals supports the process by reviewing the flags, ranking their priority, and co-developing any follow-up action plans.
Employment tax processes are driven by configuration tables, payroll codes and attributes that direct the tax treatment of compensation and how it is ultimately mapped to returns and information statements. Our employment tax team reviews these data elements and assists businesses in designing and managing workflows to maintain their integrity.
System implementation support* Co-sourcing*
Adding our skilled resources to the system implementation team adds integrity to the employment tax processes while freeing staff resources to focus on their routine responsibilities. Implementation support is available in all phases including:
• Data migration planning and implementation• Design and specifications • Testing and data sampling
Our qualified professionals are available to meet your employment tax operational needs whether it be staffing, training or responding to one-off questions.
*The scope of the these services may be limited for Ernst & Young LLP SEC registrant audit clients
Our integrated services for assessing performance, enabling change and supporting your needs
A glitch in your payroll system or employment tax processes can easily go undetected and may result in costly errors in Forms W-2 and other employment tax returns.
Get the support you need for 2017!
Take a look at how Ernst & Young LLP’s employment tax professionals are assisting businesses in meeting their year-end requirements.
Access our free year-end resources here.
15January 2017 |
Ernst & Young LLP contributors:
• Debera Salam, CPP, Editor-in-Chief
• Kristie Lowery, National Director, Employment Tax Advisory Services
• Niko Arhos, National Tax
• Kyle Lawrence, National Tax
• Rebecca Bertothy, National Tax
• Peter Berard, National Tax
• David Chan, National Tax
• Alan Mierke, National Tax
• Deborah Spyker, National Tax
Special contributing editor:
• Brian Farrington, Esq., Cowles & Thompson, Dallas, Texas
State desk:
• Lisa Miedich, State Employment Tax Analyst
Graphic design and production:
• Shaun Maxwell, Senior Designer
• Scott Mitchell, Copy Editor
Public relations:
• Lizzie McWilliams [email protected]
Anthony Arcidiacono [email protected] +1 732 516 4829
Peter Berard [email protected] +1 212 773 4084
Gregory Carver [email protected] +1 214 969 8377
Bryan De la Bruyere [email protected] +1 404 817 4384
Jennie DeVincenzo [email protected] +1 732 516 4572
Richard Ferrari [email protected] +1 212 773 5714
David Germain [email protected] +1 516 336 0123
Julie Gilroy [email protected] +1 312 879 3413
Ken Hausser [email protected] +1 732 516 4558
Jessica Heroy [email protected] +1 704 331 1869
Jimmy Kennedy [email protected] +1 732 516 4170
Nicki King [email protected] +1 214 756 1036
Kristie Lowery [email protected] +1 704 331 1884
Candylin Mendoza [email protected] +1 212 773 3664
Matthew Ort [email protected] +1 214 969 8209
Chris Peters [email protected] +1 614 232 7112
Stephanie Pfister [email protected] +1 415 984 7190
Debera Salam [email protected] +1 713 750 1591
Deborah Spyker [email protected] +1 720 931 4321
Mike S. Willett [email protected] +1 404 817 4637
Ernst & Young LLP Employment Tax Advisory contacts
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.
Ernst & Young LLP does not bear any responsibility whatsoever for the content, accuracy or security of any links (by way of hyperlink or otherwise) to external websites.
© 2017 Ernst & Young LLP.All Rights Reserved.
SCORE No. 00270-171US CSG No. 1701-2160050 GeneralED None
This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.
ey.com
Connect with us
Follow us on Twitter
Join us on LinkedIn: Payroll Perspectives from EY
EY | Assurance | Tax | Transactions | Advisory