Overview: Fringe benefits, such as health benefits, company cars, commuter transportation benefits and educational assistance plans, just to name a few, are the icing on the cake in attracting and retaining high quality employees. In this heavily regulated area, however, employers must stay abreast of frequent payroll tax law changes to prevent an otherwise tax-free fringe benefit from becoming fully taxable. Employers must also look out for changes to the special payroll tax rules that apply to other common types of payments such bonuses, severance pay and back pay.
Author: Rena Pirsos, JD, Legal Editor
The Supreme Court has set April 28 as the date it will hear arguments that could decide the fate of same-sex marriage nationwide. The Court will hear four consolidated cases in Obergefell v. Hodges involving same-sex marriage bans in Michigan, Ohio, Kentucky and Tennessee.
An employee who receives sick pay - long-term or short-term disability pay - from an employer or a third party, such as an employer's agent or an insurance company, is required to pay Social Security and Medicare (FICA) taxes on the amounts received. Federal income tax withholding is mandatory or voluntary, depending on the payer. Although sick pay is taxable to the employee, and the employer must pay its matching share of FICA taxes, the employer and the third party may transfer liability between themselves for withholding, depositing and reporting the taxes attributable to the sick pay. Third-party sick pay is reported on Form 8922, Third-Party Sick Pay Recap, under certain circumstances. This How To explains to employers how reporting of third-party sick pay to the IRS is handled.
The IRS has issued guidance explaining how it will apply the Supreme Court's decision in United States v. Quality Stores, Inc. to claims for refund of employment taxes paid on severance payments.
Employees' salary and fringe benefits are subject to federal income tax (FIT), Social Security and Medicare (FICA) taxes and federal unemployment insurance (FUTA) tax. However, while certain cash and noncash fringe benefits may be offered to employees on a tax-free basis, an otherwise tax-free fringe benefit becomes taxable compensation to an employee if an employer does not meet the rules for that particular fringe benefit. This section assists HR professionals in determining which fringe benefits (e.g., company cars, health benefits) and other compensation (e.g., bonuses, awards) are taxable.
Employee benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans, may be subject to withholding for federal income taxes (FIT), Social Security and Medicare (FICA) taxes or federal unemployment (FUTA) taxes. This section helps HR professionals understand how each particular type of benefit plan must be structured and how to properly tax and report contributions, reimbursements and distributions in order to ensure compliance with the Internal Revenue Code (IRC).
On December 19, President Obama signed into law the Tax Increase Prevention Act of 2014 (TIPA) retroactively reinstating to January 1, 2014 more than 50 different tax benefits that expired on December 31, 2013. Among these is the parity for mass transit (including transit passes and vanpools) and parking benefits.
The IRS has issued the annual pension and fringe benefit plan cost-of-living adjustments (COLAs) for tax-year 2015. Employers must reprogram their computers and payroll systems with these amounts before the first payroll of 2015.
The IRS has issued Revenue Ruling 2014-32 (Rev. Rul.) providing guidance on the tax consequences of employer use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits to employees. The Rev. Rul. also discusses whether mandatory delivery charges employees incur when ordering vanpool vouchers are qualified transportation fringe benefits.
The IRS has adopted as final regulations that clarify proposed regulations issued in 2012 allowing employers to reimburse employees who are not away from home overnight for their local lodging expenses as a tax-free working condition fringe benefit (rather than a taxable personal expense) under the Internal Revenue Code.
This chart provides employers with a comparison of the current and prior year retirement plan cost of living adjustments and fringe benefit limitations. It helps employers ensure that they are withholding the correct amount of taxes from the pay of employees who receive various benefits. The chart will be updated annually when new amounts are announced by the Internal Revenue Service, which is usually by the end of October.
Payroll tax laws affecting fringe benefits and other common employer payments.