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
An in-depth review of the spectrum of Wisconsin employment law requirements HR must follow in respect to Taxation of Employee Benefits.
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.
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 assists HR professionals in understanding 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.
The Internal Revenue Service has issued Notice 2014-1, which further clarifies the various effects of the US Supreme Court's decision in US v. Windsor and IRS Revenue Ruling 2013-17, regarding same-sex marriage, on cafeteria plans, including flexible spending arrangements and health savings accounts.
A new section on Taxation of Employee Benefits: Wisconsin has been added to the Employment Law Manual in light of the recent Supreme Court decision in U.S. v. Windsor recognizing same-sex marriage.
The Minnesota Department of Revenue has issued a news release implementing the Internal Revenue Service's recent revenue ruling regarding the tax treatment of health insurance benefits provided by employers to employees' same-sex spouses as a result of the Supreme Court decision in United States v. Windsor.
In the wake of the Supreme Court decision in United States v. Windsor and the holdings of the subsequent Revenue Ruling issued by the Internal Revenue Service (Rev. Rul. 2013-17) regarding the federal tax treatment of same-sex spousal health insurance benefits, the IRS has now issued much anticipated guidance (Notice 2013-61) for employers and employees on how to claim a refund, credit or adjustment of overpayments of FICA taxes and withheld federal income tax with respect to health insurance coverage and certain fringe benefits provided, and compensation paid, to same-sex spouses.
Although same-sex marriage is not recognized in Wisconsin, the state Department of Revenue has issued tax guidance for individuals in a same-sex marriage.
Payroll tax laws affecting fringe benefits and other common employer payments.