volume 73, no. 9 04/25/2014 payroll guide...payroll guide (usps 424-120) is published biweekly by...

Volume 73, No. 9 04/25/2014

Payroll Guide

n Highlights n

IRS Issues Guidance on How Same-Sex Marriage Ruling Applies to Retirement Plans There are nine Q&Ason this topic.

Employers in 15 States Could Pay Higher Federal Unemployment Tax Rates in 2014 Federal loans need to berepaid by Nov. 10, 2014 to avoid the increase.

Employees Can’t Voluntarily Forego Overtime As a result, the employer owed them back wages.

IRS Revises Form 941-X and Instructions Some changes have been made to the form.

Employer Not Entitled to Refund on Taxes Paid on Grossed-Up Wages The IRS has issued a Chief CounselAdvice which states that an employer is not entitled to a refund of employment taxes that it intentionallyoverpaid to avoid penalties after it grossed-up an employee’s wages.

Taxpayer Did Not Qualify for ‘‘Reasonable Cause’’ Exception to Failure-to-Deposit Penalty Reliance on a taxprofessional to prepare and file a tax return is not reasonable cause to abate the penalty.

Tax Professionals May Now View Transcript of Client’s Account Online A qualified tax professional who hasa Form 8821, Tax Information Authorization, on file with the IRS may now request a client’s account transcriptusing the Transcript Delivery System.

Route to:

Editors: Robert N. Rivitz, J.D.PAYROLL GUIDELisa B. Fagan, J.D.EDITORIAL STAFFChristopher Wood, FPCDeborah TamPublisher: Linda Scheffel, J.D., LL.M.Iris GreidingerDirector: Virginia Lorenzo, J.D., LL.M.

Managing Editor: Peter Kramer, CPA

Payroll Guide (USPS 424-120) is published biweekly by Thomson Reuters/RIA, 195 Broadway, New York, NY 10007. Volume 73, No. 9.Annual subscription rate: $1,045; $350 (newsletter only).Periodicals postage paid at New York, NY 10007 and additional mailing offices. 2014 Thomson Reuters/RIA. All rights reserved. Copyright is not claimed in any material secured from official U.S. Government sources.Customer Service: 1-800-431-9025.Postmaster: Send address changes to Payroll Guide, Thomson Reuters Customer Service, 117 East Stevens Avenue, Valhalla, NY 10595-1264.

2014 Thomson Reuters/RIA

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Thomson Reuters/RIA04/25/2014

IRS Improves Functionality of Online Tax Deposit Calendars Employers may tailor the online tax depositcalendars to meet their own needs.USCIS Now Has Information Sheet to Help Answer Employees’ Form I-9 Questions USCIS has created aone-page information sheet that includes employees’ top 12 questions on completing Form I-9.IRS Issues 2014 Housing Cost Exclusion Amounts for Individuals Working Abroad in High-Cost AreasIndividuals who work outside the U.S. and live in certain high-cost areas may be eligible for a higher housingcost exclusion than is generally allowable.State Highlights A number of states have reported new laws and developments.

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Thomson Reuters/RIA 04/25/2014

IRS Issues Guidance on How Same-SexMarriage Ruling Applies to Retirement Plans

The IRS has issued a notice that provides guidanceon how the Supreme Court’s ruling in United States v.Windsor, 111 AFTR 2d 2013-2385, applies to retire-ment plans that are qualified under Code Sec. 401(a)[Notice 2014-19, 2014-17 IRB].

Background. On June 26, 2013, the Supreme Courtruled in United States v. Windsor that Section 3 of theDefense of Marriage Act (DOMA) is unconstitutional.Section 3 of DOMA defines marriage for purposes ofadministering federal law as the ‘‘legal union betweenone man and one woman as husband and wife.’’

In response to the Supreme Court decision, the IRSissued Rev Rul 2013-17, 2013-38 IRB 201, which saidthat same-sex couples, legally married in jurisdictionsthat recognize their marriages, will be treated as mar-ried for federal tax purposes, regardless of whetherthe couple lives in a jurisdiction that recognizessame-sex marriage or a jurisdiction that does notrecognize same-sex marriage.

The new IRS notice. The new IRS notice has nineQ&As on how the Windsor ruling applies to retirementplans. Q&A #2 states that qualified retirement plansmust take into account the Windsor ruling as of June26, 2013. A retirement plan will not be treated asfailing to meet the requirements of Code Sec. 401(a)merely because it did not recognize the same-sexspouse of a participant as a spouse before June 26,2013. A qualified retirement plan will not lose its quali-fied status due to an amendment to reflect the Wind-sor ruling for some or all purposes as of a date prior toJune 26, 2013, if the amendment complies with appli-cable qualification requirements (such as Code Sec.401(a)(4)). The IRS points out in Q&A #3 that recog-nizing same-sex spouses for all purposes under aplan prior to June 26, 2013, may trigger requirementsthat are difficult to implement retroactively (such asthe ownership attribution rules) and may create unin-tended consequences.

If a retirement plan for purposes of Code Sec.401(a) defines a marital relationship by reference toSection 3 of DOMA, or is otherwise inconsistent with:(a) the outcome of the Windsor ruling, (b) the guid-ance in Rev Rul 2013-17, 2013-38 IRB 201, or (c) thisnew notice, then an amendment to the plan that re-flects the outcome of the Windsor ruling, the guidancein Rev Rul 2013-17, 2013-38 IRB 201, and this newnotice is required by the later of: (i) the otherwiseapplicable deadline under Section 5.05 of Rev Proc2007-44, 2007-2 CB 54, or its successor, or (ii) Dec.31, 2014 (see Q&A #s 5 and 8).

If a retirement plan’s terms are not inconsistent withthe Windsor ruling, the guidance in Rev Rul 2013-17,2013-38 IRB 201, and this new notice, an amendmentto the plan generally would not be required (see Q&A#6). If a plan sponsor chooses to apply the rules in amanner that reflects the outcome of the Windsor rul-ing for a period before June 26, 2013, an amendmentto the plan that specifies the date as of which, and thepurposes for which, the rules are applied is required(see Q&A #7). The amendment to the plan must bemade by the later of: (i) the otherwise applicabledeadline under Section 5.05 of Rev Proc 2007-44,2007-2 CB 54, or its successor, or (ii) Dec. 31, 2014.

Employers in 15 States Could Pay HigherFederal Unemployment Tax Rates in 2014

Employers in 15 states (and the Virgin Islands)may not be eligible to claim the maximum amount ofstate unemployment tax credits on their 2014 federalunemployment (FUTA) tax return, because their statehas had an outstanding federal unemployment insur-ance (UI) loan for at least two years.

Background. Employers pay FUTA tax at a rate of6.0% on the first $7,000 of covered wages paid toeach employee during a calendar year, regardless ofwhen those wages were earned. This tax may beoffset by credits of up to 5.4% (known as the “normalcredit” and “additional credit”) against their FUTA taxliability for amounts paid to a state UI fund by January31 of the subsequent year (see Payroll Guide at¶ 4075). The net FUTA tax rate for most employers is0.6% (i.e., 6.0% − 5.4%).

Under Title XII of the Social Security Act, states withfinancial difficulties can borrow funds from the federalgovernment to pay UI benefits. If a state defaults on itsrepayment of the loan, the amount of state UI taxcredits that employers in the state may claim is re-duced. Employers in credit reduction states pay FUTAtax at a 0.3% rate higher than other employers, begin-ning with the second consecutive January 1 in whichthe loan is not repaid by November 10 of that year. Foreach succeeding year in which there is a balance, thecredit is further reduced by an additional 0.3%.

Potential 2014 FUTA credit reduction states. Thefollowing states (and the Virgin Islands) will be creditreduction states in 2014, unless they repay their out-standing federal UI loans by Nov. 10, 2014, because,according to the Department of Labor, they have hadan outstanding federal UI loan for at least two years:Arkansas, California, Connecticut, Delaware, Geor-gia, Indiana, Kentucky, Missouri, New Jersey, New

Payroll Guide 3


York, North Carolina, Ohio, Rhode Island, South Car-olina, and Wisconsin.

0.9% credit reduction. Delaware employers face apossible 0.9% credit reduction on their 2014 FUTA taxreturn (maximum $63 increase per employee) be-cause of their state’s failure to repay its outstandingfederal loans for four consecutive years.

1.2% credit reduction. Employers in Arkansas, Cali-fornia, Connecticut, Georgia, Kentucky, Missouri,New York, North Carolina, Ohio, Rhode Island, Wis-consin, and the Virgin Islands face a possible 1.2%credit reduction on their 2014 FUTA tax return (maxi-mum $84 increase per employee) because of theirstate’s failure to repay its outstanding federal loans forfive consecutive years.

1.5% credit reduction. Employers in Indiana andSouth Carolina face a possible 1.5% credit reductionon their 2014 FUTA tax returns (maximum $105 in-crease per employee) because of their state’s failureto repay its outstanding federal loans for six consecu-tive years. However, South Carolina took steps toavoid becoming a FUTA tax credit reduction state in2013 by repaying some of its federal loan and expectsto continue to avoid such a reduction in 2014 as itcontinues to repay its loan.

Even higher FUTA credit reduction rates. The 2014FUTA tax rate for employers in Arkansas, California,Connecticut, Georgia, Indiana, Kentucky, Missouri,New Jersey, New York, North Carolina, Ohio, RhodeIsland, South Carolina, Wisconsin and the Virgin Is-lands could even be higher in 2014 than noted aboveif these jurisdictions are subject to the Benefit CostRatio (BCR) add-on. The BCR add-on (see PayrollGuide at ¶ 4075) goes into effect beginning with thefifth taxable year of any succeeding consecutive Jan-uary 1st that there is a balance due on the federal UIloan. The tax is a complicated calculation that com-pares the average unemployment benefits that havebeen paid to the tax effort in the state. If the tax efforthas not met a certain level, the BCR add-on is im-posed. The Virgin Islands was subject to the BCRadd-on in 2012 and 2013. See Payroll Guide Newslet-ter at ¶ 10.11, for further information on the add-on.

Arizona. Arizona repaid its outstanding federal UIloan in 2013. As a result, the net FUTA tax rate forArizona employers will be 0.6% (i.e., the rate foremployers that are not in credit reduction states) in2014. Arizona recently took out another federal UIloan, but a spokesperson for the Arizona Departmentof Employment Security has told RIA that the Stateexpects to repay the federal UI loan by May 5, 2014.

Arkansas. The Arkansas Department of WorkforceServices (DWS) has announced that, barring anyfurther economic downturn, it does not expect to be acredit reduction state in the 2014 tax year [DWSwebsite, Unemployment Insurance Tax Information].

New Jersey. New Jersey repaid its federal UI loansby Nov. 10, 2013, to avoid being a credit reductionstate in 2013, but took out another loan in December2013, which means that it could be a credit reductionstate again in 2014 if it does not repay the loan byNov. 10, 2014.

North Carolina. According to published reports,North Carolina expects to repay its federal UI loans byNov. 10, 2015.

Pennsylvania. Pennsylvania took out federal UIloans in January 2014 and could be a credit reductionstate in the 2016 tax year if the loans aren’t repaid.

Employees Can’t Voluntarily Forego Over-time

Citywide Security Services Inc., d/b/a Citywide Pro-tection Services (Citywide), has agreed to pay$14,760 in overtime back wages to 30 security guardsafter an investigation by the U.S. Department of La-bor’s (DOL) Wage and Hour Division (WHD). Thecompany will also pay $5,000 in civil money penaltiesfor willful and repeat violations of the Fair Labor Stan-dards Act (FLSA). The company president claimedthat the workers had voluntarily agreed not to be paidovertime because the company could not afford topay them time-and-a-half for hours worked over 40 ina workweek [WHD News Release, Citywide SecurityServices will pay more than $14,000 in back wages to30 Cleveland security guards because of US Depart-men t o f Labor i nves t i ga t i on , 4 /10 /14 ;www.cleveland.com, Citywide Protection Servicesmust pay $14,760 in back wages: president saysemployees burned him on OT agreement, 4/14/14].

The WHD found that the employer paid securityguards who worked over 40 hours in a workweek atstraight-time rates in checks separate from the em-ployees’ regular payroll checks.

A previous WHD investigation in 2011 found that 12employees were due overtime after misclassificationby the employer as independent contractors, ratherthan employees. The current WHD investigationfound that six of those 12 employees did not accepttheir checks, at the suggestion of the company. Forsome employees who accepted their back wages andcontinued working, the company lowered their hourlywage and/or reduced their scheduled work hours.

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Following the first investigation, the company and itsowner, George Lewandowski, failed to implement re-quired record-keeping provisions of the FLSA, includ-ing maintaining time and payroll records.

Lewandowski claimed, according to http://www.cleveland.com/, that he was being characterizedas a bad guy, when all he had tried to do was help outhis employees. He said workers kept demandingovertime hours because they needed money. Lewan-dowski told them he couldn’t offer overtime becausehe couldn’t afford to pay employees attime-and-a-half. He said that the employees acceptedthe condition of working beyond the 40-hour work-week for regular, or straight-time, pay.

Lewandowski believed that, in hindsight, heshouldn’t have agreed to his employees’ request formore hours. He said that he should have just hiredanother worker or workers. He stated that, as a resultof the investigation, those who want overtime nowhave to pick up hours at other companies — that is, ifthey can find the work.

‘‘I was just being nice,’’ Lewandowski said. ‘‘Lookwhere being nice got me in the long run.’’

Under the terms of the consent judgment with theWHD, in addition to paying the back wages and penal-ties, Citywide is required to post a notice informingemployees about the investigation and about theirrights to minimum wage, overtime, and freedom fromretaliation for exercising their rights under the FLSA.

IRS Revises Form 941-X and InstructionsThe IRS has posted an April 2014 version of Form

941-X, Adjusted Employer’s Quarterly Federal TaxReturn or Claim for Refund, and the Form 941-Xinstructions, on its website.

Form 941-X is filed to correct an error on a previ-ously-filed Form 941. Form 941-X is a stand-alone taxreturn. It does not get attached to Form 941.

Changes to the FormAdditional Medicare tax. Beginning in 2013, there’s

an additional 0.9% Medicare tax imposed on taxpay-ers (other than corporations, estates, or trusts) receiv-ing wages with respect to employment in excess of$200,000 in a year ($250,000 for married couplesfiling jointly and $125,000 for married couples filingseparately). Employers must begin withholding theadditional Medicare tax (see Payroll Guide at ¶ 4055)once an employee’s wages exceed $200,000, even ifthe employee ultimately may not be liable for theadditional tax. Employers who are adjustingover-reported amounts, or claiming a refund or abate-

ment of over-reported employment taxes, must com-plete certain certifications on Part 2 of Form 941-X.The IRS has expanded the ‘‘Note’’ under line 3 ofForm 941-X to explain that the certifications on lines 4and 5, with respect to the correction of over-reportedMedicare tax, do not include the correction ofover-reported additional Medicare tax. Form 941-Xcannot be used to correct over-reported amounts ofadditional Medicare tax unless the amounts were notwithheld from employee wages or an adjustment isbeing made for the current year.

Reclassified workers. Code Sec. 3509 providesspecial tax rates for the employee share of incometax, Social Security tax, Medicare tax, and additionalMedicare tax withholding when workers are reclassi-fied by the IRS as employees. On the April 2014version of Form 941-X, employers now enter correc-tions to additional Medicare tax wages on Part 3, line17, if the IRS reclassified certain workers as employ-ees and used Code Sec. 3509 to calculate the taxesdue.

Claiming the COBRA premium credit. Under theAmerican Recovery and Reinvestment Act of 2009(ARRA, P.L. 111-5) and subsequent amendments,workers who were involuntarily terminated (i.e., assis-tance-eligible individuals or AEIs) between Sept. 1,2008 and May 31, 2010, could receive a 65% subsidyon their COBRA continuation health insurance premi-ums for up to 15 months. The person who providedthe subsidy to an AEI (e.g., an employer) received acredit for the subsidy on the person’s employment taxreturn.

For tax periods beginning after Dec. 31, 2013, theCOBRA premium assistance credit should be claimedon Form 941-X, Part 3, lines 19a and 19b. The creditcan no longer be claimed on Form 941 or Form941-SS. Form 941-X should be filed after filing Form941 or Form 941-SS. Filing a Form 941-X before filinga Form 941 or Form 941-SS for the quarter may resultin errors or delays in processing Form 941-X. Employ-ers entitled to the credit, but not otherwise required tofile Form 941 or Form 941-SS, should file Form 941with a -0- entered on line 12 before filing Form 941-Xto claim the credit.

Elimination of certain lines. Certain lines on Form941-X, Part 3, have been eliminated that related to theCOBRA premium credit and the advance earned in-come credit because the statute of limitations to makecorrections to these items has expired. If the statute oflimitations for any of these corrections is still open, theApril 2013 version of Form 941-X will need to be filedinstead.

Payroll Guide 5


Lines 13a through 13c have been removed from thenew version of Form 941-X, as they related to thepayroll tax exemption in the HIRE Act, which may notbe claimed on wages paid after Dec. 31, 2010.

Other NotesOn a recent IRS payroll industry telephone confer-

ence call, it was noted that: (1) Form 941-X mustcurrently be filed on paper; and (2) the IRS has nocurrent plans to allow Form 941-X to be filed electroni-cally.

Employer Not Entitled to Refund on TaxesPaid on Grossed-Up Wages

The IRS has issued a Chief Counsel Advice (CCA)which states that an employer is not entitled to arefund of employment taxes that it intentionally over-paid to avoid penalties after it ‘‘grossed-up’’ an em-ployee’s wages [Chief Counsel Advice 201414019].

The facts. An employer regularly sends employeesoverseas. Not wanting the employees to have nega-tive tax consequences from the assignment, the em-ployer adjusted the employees’ salaries to contem-plate both foreign and U.S. taxes. The adjustment ismade based on a hypothetical tax, which is ‘‘all theU.S. federal and state taxes that the employee wouldowe if the employee stayed in the United States.’’ The‘‘hypothetical tax’’ is then compared to the estimatedforeign and domestic taxes, and the employee’s payis adjusted so the employee is no better or worse offbecause of the taxes.

The employer filed for a refund of employmenttaxes. It claimed that it paid all of the employmenttaxes on the wages earned by employees who areassigned overseas without actually withholding thetaxes. The employer said that it paid the taxes out ofits own pocket, and then subsequently collected hy-pothetical taxes from its employees. The employerclaimed that it intentionally overpaid employmenttaxes in order to avoid penalties, and trued up the taxliability later by claiming refunds. The employer as-serted that it did not need to contact employees or gettheir consent to claim refunds of the employee shareof FICA tax because it didn’t actually withhold taxesfrom its employees’ wages.

The ruling. The IRS ruled that the employer is notentitled to a refund of the overpaid income tax with-holding (ITW) and FICA taxes. According to the IRS, ifthe employer has a prearranged plan to pay anamount of wages (‘‘stated wages’’) to an employee netof income tax withholding (and thus facially pay theincome tax withholding of the employee out of its own

funds, rather than deducting the withholding from theemployee’s ‘‘stated wages’’ in the year of the wagepayment), then the employer is simply determiningthe employee’s wages under a different method ofdetermining wages (i.e., the wages are grossed-up),and the income tax withholding and employee FICA isactually withheld on the grossed-up amount, with ITWand FICA tax being paid as the wages are paid.

The IRS said that because the employer is actuallywithholding the taxes from the employees’grossed-up wages under its plan, the employer is notentitled to a refund of income tax withholding for aprior year, and any refund of employee FICA taxeswould be subject to the usual rules, including therequirement that the employer procure consents fromthe employees to receive refunds on the employees’excess FICA withholding. The IRS assumed that theemployees were getting current credit for the ITWunder the employer’s plan.

The IRS said that the above situation was differentfrom a situation where, in a subsequent year, theemployer discovered a possible error and paid theITW and employee FICA from its own funds (and theemployee received no credit for ITW), and then ap-plied for a refund.

See Payroll Guide at ¶ 3795 for further informationon this topic.

Taxpayer Did Not Qualify for ‘ ‘ReasonableCause’’ Exception to Failure-to-Deposit Pen-alty

The IRS has issued a Chief Counsel Advice (CCA)which says that a taxpayer did not qualify for the‘‘reasonable cause’’ exception to the penalty for failureto timely deposit his employment taxes that wereowed as a result of his exercise of nonqualified stockoptions [Chief Counsel Advice 201414017].

The IRS will generally assert the failure to timelydeposit employment tax penalty under Code Sec.6656(a) unless the taxpayer can demonstrate that thefailure to make timely employment tax deposits wasdue to ‘‘reasonable cause and not due to willful neg-lect.’’ The taxpayer said that there was ‘‘reasonablecause’’ for not timely depositing the employment taxesbased on his reliance on a third-party payroll process-ing company to make his employment tax deposits, aswell as his history of timely payment of other requireddeposits. In addition, the taxpayer corrected the latedeposits relating to the stock-based compensationimmediately upon discovering the problem by institut-ing new procedures.

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The IRS did acknowledge that the taxpayer’s ac-tions may amount to the exercise of ordinary businesscare that the reasonable cause defense requires, andto the absence of ‘‘willful neglect.’’ However, the rea-sonable cause defense also requires the taxpayer todemonstrate that despite his exercise of ordinary bus-iness care and prudence, he was ‘‘rendered unable tomeet his responsibilities.’’ The IRS concluded that thetaxpayer did not meet this requirement based on theSupreme Court’s decision in U.S. v. Boyle, 55 AFTR2d 85-1535, 1/9/85, that reliance on an attorney toprepare and file a tax return is not ‘‘reasonable cause’’to abate the late filing penalty.

First time abate administrative waiver. The CCAalso discusses the ‘‘first time abate’’ (FTA) administra-tive waiver that the IRS may use to relieve a taxpayerof a penalty for a single period if he has a record ofprior compliance. The examining agent concludedthat the taxpayer did not qualify for a FTA. The tax-payer had not requested a waiver under the FTAprocedures. The taxpayer also asked whether theFTA process may be used where the penalty has notbeen assessed, but rather is being considered for ataxpayer under examination. The IRS said that, be-cause the FTA is granted as a matter of administrativegrace, and not as a result of any statutory authority,this question is not a legal issue, but rather is an IRSmanagement policy decision. It was the opinion of theCCA that it would be a waste of resources for thepenalty to have to be assessed, and then protested,and then abated, if the FTA was appropriate. TheCCA recommends that the FTA be considered forwaiver before assessment of failure-to-deposit penal-ties.

The CCA also states that under the current proce-dures set forth in the Internal Revenue Manual, theFTA must be applied to the earliest tax period. Thetaxpayer had asked whether the FTA could apply tothe period with the largest penalty.

Tax Professionals May Now View Transcriptof Client’s Account Online

The IRS has announced that a qualified tax profes-sional who has a Form 8821, Tax Information Authori-zation, on file may now request a client’s accounttranscript using the Transcript Delivery System (TDS)[IRS e-News for Tax Professionals, Issue No.2014-14, 4/4/14].

Tax professionals who use TDS may request andview online account transcripts (including employ-ment tax accounts), wage and income documents, taxreturn transcripts, and verification of non-filing letters.

A new product (the Record of Account) combines boththe Return Transcript and Account Transcript in oneproduct.

Form 8821 must be on file with the CentralizedAuthorization File (CAF), naming the individual, notthe individual’s business, as the appointee for theclient. TDS transcripts can be requested if either Form8821 or Form 2848, Power of Attorney and Declara-tion of Representative, is on file with the CAF.

Users must meet the requirements of IRS Circular230, Regulations Governing Practice before the Inter-nal Revenue Service, or be an Electronic Return Orig-inator (ERO) with five or more accepted returns, inorder to register and use TDS.

IRS Improves Functionality of Online TaxDeposit Calendars

The IRS has updated Publication 1518A, Tax Cal-endar Options for Businesses and Self-Employed.The publication notes that businesses can track fed-eral tax due dates on their computers or mobile de-vices, using electronic versions of the IRS Tax Calen-dar for Businesses and Self-Employed.

The ‘‘Online Calendar’’ is a monthly calendar thatshows all tax deadlines for the month, including in-come tax, employment tax, and excise tax deadlines.This calendar is available in both English and Span-ish. It can now be accessed from a computer,smartphone, or tablet.

Users can see all events or filter them by monthlydepositor, semiweekly depositor, excise, or generalevent types (e.g., individual, corporate, or partnershipincome tax deadlines). For example, if a user wouldlike to only view semiweekly deposit deadlines, theuser would un-check the ‘‘General,’’ ‘‘Monthly Deposi-tor,’’ and ‘‘Excise’’ boxes on the lower left-hand side ofthe screen, and then the screen will only display thedeadlines for a semiweekly depositor, including thedeadline for filing Form 941, if applicable.

The IRS ‘‘CalendarConnector’’ provides users withaccess to important deadlines right from theirdesktop, even when they’re offline. As new events areadded, the events will be automatically updated viathe desktop tool.

The IRS recently issued a new version of the‘‘CalendarConnector.’’ Employer events are now sep-arated into ‘‘Monthly Depositor’’ and ‘‘Semiweekly De-positor’’ categories. Users check boxes to select theevent categories they would like to display (general,monthly depositor, semiweekly depositor, excise).

Payroll Guide 7


Adding due dates to user’s Outlook calendar. Usersnow have the option to add the calendar to Outlook2007, Outlook 2010, or Mac iCal. Subscribing addsweb calendar data to a user’s calendar program. Theweb calendar data will be updated automatically, butusers will not be able to make manual changes to it.

Employment tax due dates may also be found inPayroll Guide at ¶ 4210.

USCIS Now Has Information Sheet to HelpAnswer Employees’ Form I-9 Questions

U.S. Citizenship and Immigration Services (USCIS)has created a one-page information sheet that in-cludes employees’ top 12 questions on completingForm I-9, Employment Eligibility Verification [USCISwebsite, Form I-9 Employee Information Sheet, 1/28/14].

Background. Federal law requires employers toverify the identity and employment authorization ofnew employees. Employees must complete Section 1of Form I-9 no later than on the first day of employ-ment. They must also give their employer documenta-tion that establishes their identity and employmentauthorization. They must present the documentationno later than the third day after beginning employ-ment.

The new information sheet. The information sheetincludes answers to the following questions: (1) Whatis the purpose of the Form I-9?; (2) Must I fill outeverything in Section 1?; (3) Which documents do Ineed to show my employer?; (4) Do I need to show myemployer one or two documents?; (5) What will hap-pen if I do not complete Section 1 and/or presentacceptable documents?; and (6) Can I get in trouble ifI lie on the form?

The employee information sheet is available in En-glish and Spanish.

IRS Issues 2014 Housing Cost ExclusionAmounts for Individuals Working Abroad inHigh-Cost Areas

The IRS has issued a notice that allows certainindividuals who work outside of the U.S. and live incertain high-cost areas to deduct or exclude a greaterportion of their housing costs for the 2014 tax yearthan is otherwise allowable [Notice 2014-29, 2014-18IRB].

The U.S. generally taxes its citizens and residentson their worldwide income. However, individuals whohave a tax home in a foreign country, and who satisfy

either the bona fide foreign residence test or theforeign physical presence test, may elect to excludecertain foreign housing costs paid or incurred on theirbehalf from gross income (or claim a deduction wherethe costs are not paid by the employer). This is knownas the foreign housing cost exclusion (see PayrollGuide at ¶ 21,110).

The excludable housing cost amount is the excess,if any, of (1) the individual’s allowable housing ex-penses for the year (i.e., the housing expense limita-tion) over (2) a base amount. For 2014, a taxpayer’sallowable housing expenses, assuming he or she iseligible for the exclusion during the entire year, gener-ally can’t exceed $29,760. The base amount is$15,872. Therefore, the maximum housing cost ex-clusion for 2014 is generally $13,888 ($29,760 −$15,872). However, the IRS is permitted to issue regsor other guidance (e.g., Notice 2014-29, 2014-18 IRB)that provides for an adjustment to the maximum allow-able housing expense limitation on the basis of geo-graphic differences in housing costs relative to hous-ing costs in the United States.

The notice. The new notice increases the maximumallowable housing expense limitation above the other-wise applicable limitation of $29,760 for localities in:Angola, Argentina, Australia, Austria, the Bahamas,Bahrain, Barbados, Belgium, Bermuda, Bos-nia-Herzegovina, Brazil, Canada, Cayman Islands,Chile, China, Colombia, Costa Rica, Denmark, Do-minican Republic, Ecuador, Estonia, France, Ger-many, Ghana, Greece, Guatemala, Guyana, the HolySee, Hungary, India, Indonesia, Ireland, Israel, Italy,Jamaica, Japan, Kazakhstan, Korea, Kuwait, Luxem-bourg, Macedonia, Malaysia, Malta, Mexico,Mozambique, Namibia, the Netherlands, NetherlandsAntilles, New Zealand, Nicaragua, Nigeria, Norway,Panama, Paraguay, Peru, Philippines, Poland, Portu-gal, Qatar, Russia, Rwanda, Saudi Arabia, Singa-pore, South Africa, Spain, Suriname, Switzerland,Taiwan, Tanzania, Thailand, Trinidad and Tobago,Turkey, Ukraine, United Arab Emirates, United King-dom, Venezuela, and Vietnam.

r illustration: A U.S. taxpayer works in HongKong, China, for all of 2014. His maximum housingcost exclusion is $98,428 ($114,300 full-year limit onhousing expenses in Hong Kong per Notice 2014-29,2014-18 IRB, minus $15,872 base amount).

StatelineNew laws and developments are reported from the

following states:

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ARIZONA

Unemployment. Enhancements are being made tothe Arizona Department of Economic Security’s (DES)online tax and wage filing system. Employers will soonhave the ability to create, maintain, and reset their ownpasswords. Also, all active rated and reimbursable em-ployers will be able to see their account credit balance onthe Tax and Wage System (TWS) home page aftersuccessful login into the system. In addition, employerswill be able to notify the DES of any changes to theirbusiness (e.g., change in address, business operations,or ownership), utilizing the online filing system [DESwebsite, Upcoming Enhancements To The Online TaxAnd Wage Filing System – Coming Soon].

ARKANSAS

Withholding. The Arkansas Department of Financeand Administration is following the federal standard mile-age rates for 2014. The standard business mileage ratehas decreased from 56.5¢ to 56¢ per mile. The optionalstandard mileage rate for transportation expenses de-ductible as medical or moving expenses has decreasedfrom 24¢ to 23.5¢ per mile. The rate for individualsoperating their own passenger automobiles for a charita-ble organization is still 14¢ per mile [Arkansas StateRevenue Tax Quarterly 2, 04/01/2014, xx].

CALIFORNIA

Unclaimed Property. The California State Control-ler’s Office (SCO) has released its 2014 spring newslet-ter. The newsletter reminds holders that due diligenceletters for the 2014 report year must be sent out by April30, 2014. Holders are required to send due diligenceletters to owners with a property value of $50 or moreprior to reporting the accounts to the SCO. The newslet-ter also contains guidance on submitting the HolderRemit Report and on sending funds electronically [SCO2014 Spring Quarterly Newsletter, 4/15/14].

ILLINOIS

Employer Taxes. The City of Chicago repealed itsemployer expense tax as of Dec. 31, 2013. The tax wasscheduled to expire on July 1, 2014 [Call by RIA to City ofChicago Press Room, 4/16/14].

INDIANA

Garnishment. Effective July 1, 2014, an employee’searnings can be garnished up to the lesser of: (a) 25% ofthe employee’s disposable earnings for the week (how-ever, upon a showing of good cause by the employee,this amount can be reduced to the lesser of an amountbetween 10% and 25% of the employee’s disposableearnings); or (b) the amount by which the employee’sdisposable earnings for the week exceeds 30 times thefederal minimum wage rate. The ‘‘good cause’’ provisionabove is new [L. 2014, H1347].

KANSAS

Unemployment. Governor Brownback has signed abill that reduces 2014 unemployment tax rates by 15%for employers with a positive account balance (i.e., em-ployers who have paid more into the unemployment trustfund than their workers have received in unemploymentbenefits) if they timely filed all 2013 unemployment taxreports and timely paid all tax due. Before the discount,2014 unemployment tax rates for positive balance em-ployers ranged from 0.11% to 5.4%. After the discount,unemployment tax rates for these employers range from0.09% to 4.59%. Employers eligible for the discount willreceive an informational letter from the Kansas Depart-ment of Labor. The new rate should be reflected on theemployer’s first quarter 2014 unemployment tax report.The discount increases to 25%, beginning in the 2015tax year [Kansas Office of the Governor Media Re-leases, Governor Sam Brownback signs House Bill 2576providing relief on unemployment tax rates, 4/8/14; L.2013, H2576].

New legislation creates a new classification of employ-ers called ‘‘entering and expanding employers,’’ who areeligible to be taxed for four years at the new employerrate, or a tax rate based on their demonstrated risk, asreflected in their reserve fund ratio history, if they main-tain a positive account balance throughout the re-duced-rate period and have an increase in their accountbalance during each year. In addition, non-constructionemployers who start a business in Kansas, after June30, 2014, after being successful in another state, willhave the option, beginning in 2015, of transferring theirearned unemployment experience rating from that stateand applying it to the Kansas tax table, instead of usingthe standard new employer rate of 2.7%. However, theirKansas unemployment tax rate may not be less than 1%.Another provision in the legislation removes the capplaced on voluntary contributions that limited employersfrom reducing their unemployment tax rates to no morethan five rate groups [Kansas Office of the GovernorMedia Releases, Governor Sam Brownback signsHouse Bill 2576 providing relief on unemployment taxrates, 4/8/14; L. 2013, H2576].

MAINE

Withholding. New legislation allows the State As-sessor to establish an alternative due date for informa-tion statements that is consistent with the due date forfederal information statements. Currently, all Maine in-formation statements must be provided by January 31.Some federal statements may be provided after that date[L. 2013, S673].

MARYLAND

Unemployment. New legislation, effective July 1,2014, amends current law on work-sharing arrange-

Payroll Guide 9


ments. Changes made by the law include: (1) allowingpermanent part-time workers to be part of a work-sharingplan; (2) requiring the employer to provide an estimate ofthe number of layoffs to be avoided if the work-sharingarrangement is approved; (3) requiring employers toprovide certain information about the work-sharing ar-rangement to affected employees who are not coveredby a collective bargaining agreement; and (4) specifyingthat an affected employee who has exhaustedwork-sharing benefits or unemployment benefits is noteligible for extended UI benefits [L. 2014, H1417].

MASSACHUSETTS

Unemployment. Governor Patrick has signed legisla-tion that allows unemployment tax rates for experiencedemployers to continue to be determined under ScheduleE in the 2014 tax year, rather than under a higherunemployment tax rate schedule. This is the fifth consec-utive year that legislation was enacted to keep the taxrates under Schedule E. Rates range from 1.26% to12.27%. A spokesperson for the Massachusetts Depart-ment of Unemployment Assistance (DUA) has told RIAthat the new employer rate for non-construction employ-ers remains at 2.83% in 2014. In addition, the newemployer rate for construction employers is 8.98% in2014 (9.37% in 2013). All employers must also pay a0.06% workforce training fund tax (same rate as in 2013)and a 1.08% solvency assessment (1.31% in 2013) [L.2013, H4036].

MINNESOTA

Wage and Hour. Governor Dayton has signed a billthat will increase the State’s minimum wage rate for‘‘large employers’’ (i.e., an enterprise with an annualgross volume of sales made or business done of at least$500,000, exclusive of separately stated state retail ex-cise taxes) from $6.15 per hour to: (a) $8.00 per hour onAug. 1, 2014; (b) $9.00 per hour on Aug. 1, 2015; and (c)$9.50 per hour on Aug. 1, 2016. The minimum wage ratefor small employers will increase from $5.25 per hour to:(i) $6.50 per hour on Aug. 1, 2014; (ii) $7.25 per hour onAug. 1, 2015; and (iii) $7.75 per hour on Aug. 1, 2016.The threshold to be classified as a small employer willdecrease from $625,000 in sales to $500,000 in August2014. Additionally, the law will increase the minimumwage rate that may be paid during the first 90 consecu-tive days of employment from $4.90 per hour to $6.50per hour on Aug. 1, 2014, $7.25 per hour on Aug. 1,2015, and $7.75 per hour on Aug. 1, 2016. There willalso be a new minimum wage rate that can be paid tochildren under 18 years old. This rate is $6.50 per hour,beginning Aug. 1, 2014, and will increase as notedabove for the rate paid during the first 90 consecutivedays of employment. Minimum wage rates for workers athotels, motels, and resorts will also increase [L. 2013,H2091].

A recipient of donated time from another state em-ployee may not be paid for more than 80 hours in apayroll period during which the recipient uses sick leavecredited to his or her account. The recipient may use upto 80 hours of program donations after the death of aspouse or dependent child [L. 2013, H2091].

Withholding. The Minnesota Department of Revenue(DOR) has received inquiries from taxpayers question-ing why their payment did not show as coming out of theirbank account. A bank will generally show the paymentcoming out of a taxpayer’s account 2-3 days after it wasrequested. However, taxpayers will receive credit for thepayment as of the date they requested it [DOR E-Mail,ACH Bank Withdrawals, 4/16/14].

MISSISSIPPI

Unemployment. New legislation revises 2014 unem-ployment tax rates. Unemployment tax rates for exper-ienced employers now range from 0.39% to 5.4%. Theserates include a 0.19% workforce investment and trainingassessment (formerly known as the workforce enhance-ment training assessment). New employer rates for thefirst, second, and third years of liability are now 1.16%,1.26%, and 1.36%, respectively. These rates include the0.19% workforce investment and training assessment.Employers who paid their first quarter unemploymenttaxes prior to the enactment of this legislation will receivea notice that adjusts their liability based on the amendedtax rate [L. 2014, S2958].

MONTANA

Unclaimed Property. Montana tax preparers cansearch for unclaimed property (including payroll checks)belonging to their client on Taxpayer Access Point (TAP)using their client’s name [Montana Tax News You CanUse, 4/17/14].

NEBRASKA

Wage Payment. New legislation, effective 90 daysafter the close of the legislative session (July 18 if thesession adjourns on April 17th as scheduled), requiresemployers to provide an itemized wage statement toeach employee every payday that includes: (1) the nameof the employer; (2) the hours for which the employee isbeing paid; (3) the wages earned by the employee; and(4) the deductions made. The wage statement may beprovided by mail, electronically, or at the place of em-ployment [L. 2013, LB560].

New legislation, effective Jan. 1, 2015, establishesrequirements for employers who pay employees by pay-roll debit card. An employer must provide employeeswith immediate access to their wages, one free fundswithdrawal per week up to and including the total amountof the employee’s net wages, and not require employees

10 Payroll Guide


to pay any fees associated with paycard use [L. 2013,LB765].

NEW MEXICO

Wage and Hour. New legislation requires employerssubject to the State’s minimum wage law to display aposter in their facility by July 1, 2014, regarding humantrafficking. The notice must be in English, Spanish, orany other language that more than 10% of the workers atthe facility speak. The required language in the posternotes that obtaining forced services or labor is a crimeunder federal and New Mexico law. The poster mustprovide phone numbers for the National Human Traffick-ing Resource Center Hotline [L. 2014, H181].

Withholding. The New Mexico Taxation and Reve-nue Department has issued a March 2014 version ofFYI-104, New Mexico Withholding Tax. The publicationprovides a general overview of New Mexico withholdingtax requirements and procedures, and includes bothwage bracket and percentage method withholding ta-bles. The publication was updated solely for an addresschange. There were no changes to the withholding ta-bles in Payroll Guide at ¶ 26,307 and Payroll Guide at¶ 26,308 [Publication FYI-104, New Mexico WithholdingTax, revised 3/1/14].

OKLAHOMA

Wage and Hour. Oklahoma Governor Fallin hassigned legislation, that, effective July 1, 2014, prohibitsany municipality or other political subdivision of the statefrom establishing its own mandatory minimum wage rateor minimum number of vacation or sick leave days,whether paid or unpaid, which an employer would berequired to pay or grant employees [L. 2013, S1023].

VIRGINIA

Withholding. The Virginia Department of Taxation isreminding tax professionals that the Department’s TaxProfessionals Hotline at (804) 367-9286 is open Mondaythrough Friday, 8:30 a.m. to 4:30 p.m., to provide quickresponses to inquiries about client accounts or other taxquestions. This service is available for all tax types.

WASHINGTON

Withholding. Victims of last month’s mudslides andflooding in counties of Washington State that are desig-nated as federal disaster areas now have until October15 to file their first and second quarter 2014 federal Form941, Employer’s Quarterly Federal Tax Return. The IRSwill abate interest, late payment, and late filing penaltiesthat would otherwise apply. Relief will be provided basedon the address that is on file with the IRS. Taxpayers donot need to contact the IRS to receive this relief. The IRSis also waiving late deposit penalties for federal payrolldeposits normally due on or after March 22 and beforeApril 7, if the deposits were made by April 7, 2014 [IR2014-45, 04/04/2014].

WISCONSIN

Unclaimed Property. The Wisconsin Department ofRevenue (DOR) has issued a tax publication providingguidance for reporting unclaimed property. The publica-tion covers the following topics: who must report; what isunclaimed property; when is property abandoned; whento report; how to report unclaimed property to the DOR;using due diligence to locate the owner; what to report tothe DOR; when and how to remit unclaimed property;what the DOR does to find owners; and tips for success-ful reporting [Wisconsin Dept. Rev. Tax Publication 83,04/01/2014].

Wage and Hour. Effective April 18, 2014, the follow-ing individuals are exempt from Wisconsin’s minimumwage laws: (1) outside salespersons, as defined in 29USCS 203(k), and (2) individuals whose primary duty is‘‘obtaining orders or contracts for services or for the useof facilities for which a consideration will be paid by theclient or customer and who is customarily and regularlyengaged away from the employer’s place of business inperforming that primary duty’’ [L. 2013, A412].

Wisconsin employers are not required to keep a re-cord of the hours worked by salaried employees who areexempt from being paid overtime [L. 2013, A712].

Payroll Guide 11

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