Editor's Note: Keep up to date with constantly changing payroll tax laws and trends!

Rena PirsosOverview: A growing employer trend over the past several years has been to integrate payroll within the HR department. So, now more than ever, HR managers need to understand all the complex issues and requirements involved in payroll tax law compliance in order to effectively oversee payroll processing and ultimately avoid costly penalties. This involves managing the following tasks, among many others:

  • Preparing paychecks, which involves calculating employees' gross salary and the amounts to be deducted and withheld from those earnings for federal, state, and local taxes, various health and welfare benefits and for involuntary and voluntary payroll withholdings;
  • Determining the proper method(s) for paying employees, e.g., direct deposit, paper checks or payroll debit cards, based on federal and state wage payment laws;
  • Periodic depositing and reporting of amounts withheld with various government agencies;
  • Recordkeeping and document retention;
  • New hire reporting to state agencies; and
  • Selecting, implementing and managing automated payroll systems.

Trends: The following are just a few of the important issues that will have an impact on payroll in 2015!

  • Taxation of benefits provided to same-sex spouses: IRS Revenue Ruling 2013-17 answers some of the questions regarding the taxation and administration of employee benefit plans that were raised by the recent Supreme Court decision in United States v. Windsor, 2013 U.S. LEXIS 4921 (2013). Same-sex couples legally married in jurisdictions that recognize same-sex marriage will now be treated as married for all federal tax purposes, regardless of whether they live in a jurisdiction that recognizes same-sex marriage. There is still much variation among the states, however.
  • Taxation of severance pay: The US Supreme Court unanimously ruled in United States v. Quality Stores, Inc., that severance payments to involuntarily terminated employees that do not qualify as supplemental unemployment benefits under the IRC are subject to FICA taxes. The decision overturned a lower court ruling that could have required the IRS to issue more than $1 billion in refunds.

Author: Rena Pirsos, JD, Legal Editor

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