Dec 08 2016 Payroll Tax Reminders
Year-end payroll reporting for 2016 is right around the corner. To assist you in preparing the items your payroll provider will need to complete your payroll tax returns, below is an overview of the most significant reporting requirements to keep in mind.
Payments made to employees for an automobile allowance generally fall into one of two categories: 1) Payments made for specific reimbursements; and 2) payments made without identification. If the employee provides a detailed list of who, what, when, where, and why of a reimbursement for company travel, nothing further is required to be done. On the other hand, if the employer gives the employee an amount without the noted details, this amount will need to be included in the employees W-2 for the year. The employee will then need to provide the information in their personal income tax return in order to have a tax deduction for these expenses.
Excess Group Term Life Insurance
If you provide group term life insurance for your employees and it exceeds $50,000 in coverage, the cost of the excess is subject to income tax, Social Security tax and Medicare tax. This excess cost needs to be properly reflected in the W-2 and other year-end payroll tax reporting.
Health Insurance for Subchapter S Corporations
Health insurance payments on behalf of the owners/stockholders of an S corporation are deemed to be a taxable benefit. Therefore, the total health insurance premiums paid during 2016 on behalf of each owner/stockholder should be included in each individual’s W-2 as wages (in box 1) but not for Social Security or Medicare wages. It also needs to be reflected in box 14 of the W-2 as health insurance. This benefit also needs to be included on the 941 and the 940 as part of the gross wage figure. It will not result in any additional payroll taxes.
If you are using a payroll service, make sure to provide them with this information in a timely manner so that the amounts in your payroll tax returns are recorded properly.
Third-Party Sick Pay
A portion of the disability benefits paid to employees during 2016 must be reported on the payroll tax returns. If this was not done during the first three quarters, it must be reported on the year-end payroll tax forms including the W-2, 941 and 940.
Review any information that you have already received to determine if any of your employees collected disability payments during the year. If so, you can expect to receive a statement from the third-party payer (including the N.J. Department of Labor).
This statement may not arrive until January 2017. You are still required to include this information in your payroll tax returns including the W-2 for 2016. If you are using a payroll service, make sure to alert them that this adjustment needs to be processed before they complete the W-2 forms.
Employer Sponsored Health Insurance
The Affordable Care Act (ACA) requires additional information to be included on W-2 forms for 2016 under specific circumstances.
The cost of the health care coverage provided by employers with 250* or more W-2s in 2016 must be reported on the form W-2.* Required information includes:
- Total cost of major medical insurance (both the employer and employee premium whether it is paid with pre-tax or after tax dollars)
- Total cost of FSA contributions
Dental, Vision and HRA costs may also be included, but are optional.
This information is for reporting purposes only. There are no income tax or payroll tax implications in the reporting. It will be included in box 12 of the form W-2 with the code DD.
This information pertains only to payroll reporting and is separate from the reports required for compliance with the ACA.
*This number does not include any retirees or former employees who received this benefit but did not receive any compensation in 2016. A W-2 is not required to report the health care benefit alone.
IRS Recommendation for Reconciling Forms
In order to help reduce discrepancies and minimize correspondence from the IRS, it has been suggested that prior to mailing year-end payroll tax forms a reconciliation be done. You should reconcile the amounts shown in boxes 1 (Wages), 2 (Federal Income Tax Withheld), 3 (Social Security Wages), 5 (Medicare Wages), and 7 (Social Security Tips) from the W-3, Transmittal of Wage and Tax Statements, to the corresponding information on the Form 941s (Employer’s Quarterly Federal Tax Return) for the four quarters of 2016. You should also reconcile the state amounts in boxes 16 (State Wages) and 17 (State Withholding) to the corresponding information in the state forms for the four quarters of 2016.
W-2 Filing Due Date
The deadline for providing the form W-2 to the employee remains unchanged and is January 31, 2017. The deadline for filing the form W-2 with the form W-3 with the Social Security Administration has changed and is now January 31, 2017 as well.
Additional Payroll Tax Reminder
Newark Payroll Tax – There is a Newark payroll tax. It is at the rate of 1% of wages for services performed within Newark, for services supervised from Newark, or for wages of employees who principally report to a location in Newark. If the total wages for the quarter are less than $2,500 no tax is due. The tax return is due quarterly with the payment.
NY MTA Payroll Tax – There is a tax on wages for employees who work within the MTA district in New York. This tax is on a graduated rate from .11% to .34%. If the total wages for the quarter do not exceed $312,500, there is no tax liability.
For further information, please contact Alan Isaacs, CPA, MBA at [email protected].