Overview: Most employers offer several different types of employee benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans. Whether employer and employee contributions and benefit payments received by employees are subject to withholding for certain payroll taxes, such as federal income tax (FIT), Social Security and Medicare (FICA) taxes or federal unemployment (FUTA) tax, varies among benefit types.
Trends: The following important issues will affect the taxation of employee benefits in 2014!
Author: Rena Pirsos, JD, Legal Editor
The IRS has issued Notice 2015-6 to address several issues concerning the new Form 8922, Third-Party Sick Pay Recap, released last year.
In Notice 2015-2, the IRS has provided much anticipated special administrative procedures applicable to fourth-quarter 2014 Form 941, Employer's Quarterly Tax Return, and 2014 Form W-2, Wage and Tax Statement, for employers that allowed employees to defer more than $130 a month for mass transit benefits in 2014.
The IRS has released the 2015 optional standard mileage rates employers may use to calculate the deductible cost of operating a vehicle for business, charitable and medical or moving purposes.
Courts in Arkansas and Mississippi struck down bans on same-sex marriage. However, both decisions have been stayed pending appeal.
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.
Courts declared same-sex marriage bans unconstitutional in Kansas, Missouri, Montana and South Carolina. The 6th Circuit Court of Appeals upheld same-sex marriage bans in Kentucky, Michigan, Ohio and Tennessee.
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).
Despite the DOMA decision handed down by the Supreme Court in Windsor, state laws still vary greatly regarding both the recognition of same-sex marriage and the taxation of benefits provided to an employee's same-sex spouse by an employer. This Quick Reference chart summarizes federal and state law regarding whether same-sex marriages, civil unions and/or domestic partnerships are recognized, and whether the value of benefits provided by an employer to an employee's same-sex spouse or civil union or domestic partner is taxable. This chart will be updated when any changes in these laws occur.
The value of health insurance benefits provided to an employee's same-sex spouse or partner and/or their dependents is taxable in South Carolina.
The value of health insurance benefits provided to an employee's same-sex spouse or partner and/or their dependents is taxable in Missouri.
HR guidance on the taxation of employee benefits.