human capital tax | 2015 year-end payroll tax planning

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Year-End Payroll Tax Planning


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Agenda

I. 2016 Federal Wage and Tax Limitations

II. Marriage Equality – Supreme Court Decision

III. ACA: What Payroll Needs to Know

IV. Federal and State Backup Tax Withholding

V. IRS 2016 Hot Topics

VI. State and Local Hot Topics

VII. 2015 FUTA Credit Reduction States

VIII. State SUI Wage Base Increases

IX. Miscellaneous Year-End Payroll Tasks


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2016 Federal Wage and Tax Limitations

Social Security $118,500 (6.2%)=$7,437

401(k) $18,000 Age 50+ $6,000

Adoption Assistance $13,460

Qualified Parking $255

Transit Pass $130

Health FSA $2,550

Foreign earned income exclusion $101,300


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Marriage Equality – Supreme Court Decision

Marriage between same-sex couples now recognized in all 50 states.

Employers must consider any state wage reporting and withholding implications of health insurance, cafeteria plan elections, and other fringe benefits offered to same sex spouses.

Primarily impacts the 13 states that did not recognize same sex marriages prior to the decision.

Alabama Arkansas Georgia Kentucky Louisiana Michigan Mississippi Missouri Nebraska North Dakota Ohio South Dakota Tennessee


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ACA: What Payroll Needs to Know

Effective January 1, 2015, employers averaging or expected to average 100 or more FT employees (or FT equivalents) will be subject to the coverage mandate. Payroll and HR will be dealing with data collection around:

– Control group aggregation (common ownership, add up to 100)

– FT time status (determined month to month, average 30 hours/week or at least 130 hours in a month)

– Look-back periods (measurement periods, employer determines picks) if employee met FT status above, then coverage must be offered

In 2016, the coverage mandate drops to 50 FT or FT equivalents

Employer cost of healthcare reported on Form W2 (code DD)


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ACA Forms

New Forms (Internal Revenue Code Section 6056)

– Effective January 1, 2015, employers with 50 or more full-time or full-time equivalent employees must provide certain information reports to employees as well as transmit to the Internal Revenue Service.

1095-B - Issued by insurance providers or self-insured employers to employees

1095-C - Issued by employers to employees

1094-B - Transmittal to Form 1095 B

1094-C - Transmittal to Form 1095 C


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ACA Forms – Due Dates

Forms 1095-B and 1095-C

– Due to the individual by February 1, 2016

– Due to the IRS by February 29, 2016 (if filing by paper) or by March 31, 2016 (if filing electronically)

Forms 1094-B and 1094-C

– Due to the IRS by February 29, 2016 (if filing by paper) or by March 31, 2016 (if filing electronically)


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Federal/State Backup Tax Withholding

Under certain circumstances, payments made to non-resident individuals for performing services in the United States and certain states may be subject to mandatory “backup” tax withholding at the time payment is made to the individual.

Failure to Perform Backup Withholding

– Under federal and state laws/regulations, payer is responsible for performing the income tax withholding at the time payment for services is being made. Failure to do so will result in a 100% trust fund tax liability for the payer.

– Certain exemptions exist based on federal rules as well as each state’s rules and regulations. In order to qualify for an exemption, the payee (vendor) must generally provide the payer with an “exemption declaration” or state-specified forms.


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Federal/State Backup Tax Withholding

Issues

– Connection between federal and state backup tax withholding

– Domestic as well as international service providers

– Tax Treaty and Visa exclusions may not offer relief from state income tax withholding

– Forms W-8 series (e.g., W-8BEN/ECI) generally do not offer relief from state income tax withholding

– Form 8233 may provide relief from federal withholding but not state withholding

– Requires some level of compliance from both payer as well as payee

– On-boarding process for vendors


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IRS 2016 Hot Topics

Audit Activity

– Fringe benefits

– On-site meals

– Expense Reimbursement/Accountable Plan

– Independent contractors Nonresident reporting and withholding

Domestic contractors

– Inpatriate and expatriate employees

Affordable Care Act

– Independent contractor impact

– Penalties for noncompliance


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Particular Focus

Benefits-in-kind

– There has been a significant increase in federal and state taxing authority focus on certain “benefits-in-kind” provided by employers to employees. Items such as gift cards, travel, entertainment event tickets, clothing, electronics, etc. all may fall into the category and therefore be considered as taxable wages to the employee.

Things to consider:

– De minimis value

– Fair market value

– Grossing up value

– Employee notification


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State and Local Hot Topics

Independent Contractor Audits – Whistleblower sites – More rules around certain types of workers – Independent contractor reporting – Form W-2 to Form1099-MISC

Withholding Audits – Work state versus Resident state – Local tax audits increasing

State Unemployment Audits – Employee movement from one company to another SUTA dumping

– PEO, Pay Agent, and Management Company filing


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2015 FUTA Credit Reduction States

California 1.50% Connecticut 2.10% Ohio 1.50% Virgin Islands 1.50%

Impact of the FUTA Credit Reductions on your organization. Outlook on FUTA Credit Reductions in 2016 and on.


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State SUI Wage Base Increases

State 2016 2015 State 2016 2015 Colorado 12,200 11,800 New York 10,700 10,500

Iowa 28,300 27,300 North Carolina 22,300 21,700

Kansas 14,000 12,000 Oklahoma 17,500 17,000

Kentucky 10,200 9,900 Oregon 36,900 35,700

Minnesota 31,000 30,000 Pennsylvania 9,500 9,000

Montana 30,500 29,500 Utah 32,200 31,300

Nevada 28,200 27,800 Vermont 16,800 16,400

New Jersey 32,600 32,600 Washington 44,000 42,100

New Mexico 24,100 23,400 Wyoming 25,500 24,700


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Miscellaneous Payroll Tasks

Verify all stop payments, voids and manual checks have been processed

Schedule an out of sequence payroll for any adjustments

Schedule a bonus payroll if necessary

Reconcile 401(k) and the employer match, true up if needed

Review AP and GL for unreported wages

Reconcile bank accounts and GL accounts

Calculate any gross ups

Verify proper payroll/W-2 configuration for fringe benefits

Verify third party

Complete notifications required under special accounting rule


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Miscellaneous Payroll Tasks (continued)

Prepare Forms 1042-S if necessary

Review 2016 SUI rates assigned; provide to third-party vendor or configure internal system

Prepare and provide employees Form 3921 for Incentive Stock Options and Form 3922 for Employee Stock Purchase Plans

Review independent contractors to ensure proper worker classification


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Employee Communication

Verify mailing address

Date of last paycheck for 2015

W-2 mailing date

Revise Form W- 4 if needed

Payroll contact information for W-2 questions

2016 wage and tax limits

Flexible spending deadlines and new elections

Special communication to executives if warranted


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Ryan Contact Information Human Capital Tax Services 415.593.0580

Stephanie Pfister Director [email protected]

Michael Mojabi Principal and Practice Leader [email protected]

Cynthia Vance Senior Manager [email protected]

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This document is presented by Ryan, LLC for general informational purposes only, and is not intended as specific or personalized recommendations or advice. The application and effect of certain laws can vary significantly based on specific facts, and professional advice of any nature should be sought

only from appropriate professional advisors. This document is not intended, and shall not be deemed, to constitute legal, accounting or other professional advice.

human capital tax | 2015 year-end payroll tax planning

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