Overview: 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:
Trends: The following are just a few of the important issues that will have an impact on payroll in 2014!
Author: Rena Pirsos, JD, Legal Editor
This Quick Reference Chart provides employers with an overview of the current method required to be used in each state to withhold state income taxes from supplemental wage payments made to employees.
Beginning this May, a new application on the Office of Child Support Enforcement's portal called "eTerm" will enable an employer to electronically notify states (and US territories) that do not yet send income withholding orders electronically (e-IWOs) when the employment of an employee subject to an IWO has ended using the existing e-IWO process.
The IRS issued Notice 2014-19 and related Frequently Asked Questions providing guidance on how qualified retirement plans should treat same-sex spouses following the Supreme Court's decision in United States v. Windsor. Employers must take action to ensure that plan documents and operations conform to requirements.
The Taxation of Employee Compensation section of the Employment Law Manual has been updated to reflect new regulations clarifying when a "substantial risk of forfeiture" exists when property is transferred in connection with the performance of services by an employee.
The Depositing and Reporting Withheld Taxes section of the Employment Law Manual has been updated to include final regulations issued by the Internal Revenue Service intended to help determine which party is liable for an employer's employment tax obligations under a service agreement between the employer and a third-party payor.
Employees' salary and fringe benefits are subject to federal income taxes, Social Security and Medicare taxes, and federal unemployment insurance tax. However, certain cash and noncash fringe benefits may be offered to employees on a tax-free basis, while an otherwise tax-free fringe benefit becomes taxable compensation to employees if employers do not meet the rules for that particular fringe benefit .This section assists HR professionals in determining which fringe benefits (e.g., company car, health benefits) and other compensation (e.g., bonuses, awards) are taxable or not.
One of the most important payroll related tasks is ensuring that taxes withheld from employees' pay are deposited and reported properly and on time. This section reviews tax deposit schedules, the Electronic Federal Tax Payment System (EFTPS) and other electronic filing requirements, potential penalties for noncompliance, and important tax forms (e.g., 941, W-2, W-3, 1099).
The Internal Revenue Service (IRS) has issued final regulations under § 3504 of the Internal Revenue Code (IRC) describing circumstances that will help determine which party is liable for an employer's employment taxes when an employer has entered into a service agreement with a third-party payor.
The IRS has issued final regulations under Internal Revenue Code § 83 clarifying when "a substantial risk of forfeiture" exists when property (e.g., stock) is transferred in connection with the performance of services by an employee. The final regulations apply to property transferred on or after January 1, 2013.
The new and updated content follows the US Supreme Court ruling in United States v. Quality Stores, Inc., that FICA taxes apply to most severance pay plans.
HR and legal considerations for employers regarding payroll.