HR Support on Taxing Benefits

Editor's Note: Health care reform law and same-sex marriage issues affect payroll.

Rena PirsosOverview: 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 2015!

  • Form W-2 reporting of health insurance costs - Regarding Forms W-2, Wage and Tax Statement, that employers are required to provide to employees every January, if an employer provides group health care coverage that is not taxable to employees, it must report the aggregate cost of certain types of coverage on the employees' Forms W-2 to inform them of coverage costs.
  • Health care coverage reporting forms - The IRS has released the final instructions to Forms 1094-C and 1095-C, and Forms 1094-B and 1095-B, which employers are required to complete and file with the IRS to report on their employee health care coverage, as required by the Affordable Care Act and IRC § 6055 and § 6056.
  • Taxation of benefits provided to same-sex spouses - IRS Notice 2014-1 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.
  • Supreme Court takes up same-sex marriage issue - 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.

Author: Rena Pirsos, JD, Legal Editor

Latest items in Taxing Benefits

  • 2016 HSA and HDHP Inflation-Adjusted Amounts Released by IRS: Employment Law Manual Updated, Legal Timetable Entry Added

    Date:
    15 May 2015
    Type:
    Editor's Choice

    The IRS has released the inflation-adjusted, calendar-year 2016 amounts for high-deductible health plans (HDHPs) and health savings accounts (HSAs), as determined under § 223 of the Internal Revenue Code.

  • Date:
    15 May 2015
    Type:
    Legal Timetable

  • Taxation of Employee Benefits

    Type:
    Employment Law Manual

    This section helps HR and payroll professionals to understand how particular types of benefit plans must be structured and how to properly tax and report contributions, reimbursements and distributions in order to ensure compliance with the Internal Revenue Code.

  • Annual Retirement Plan COLAs and Fringe Benefit Limitations

    Type:
    Quick Reference

    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.

  • Internal Revenue Code Conformity by State

    Type:
    Quick Reference

    Some states that require employers to withhold income taxes from employees' wages tie their definitions of "wages" to the federal Internal Revenue Code (IRC). However, many states update their IRC references to a specific date every year or so, while others roll their references into the current version of the IRC. Even with IRC conformity, some states have important exceptions. This Quick Reference chart summarizes each state's IRC conformity reference.

  • New Task Helps Employers Set Up a New Employee on the Payroll

    Date:
    14 April 2015
    Type:
    Editor's Choice

    This new Task guides an employer through the process of adding a new hire to the payroll, from verifying an employee's right to work to ensuring proper withholdings.

  • Same-Sex Marriages and Domestic Partnerships Handbook Statement: California

    Type:
    Employee Handbooks

    California employers seeking to indicate that they are compliant with legal requirements regarding same-sex couples and domestic partnerships and to provide a point of contact for employees in these relationships who have benefits-related questions should consider including this model policy statement in their handbook.

  • FMLA Same-Sex Spouse Benefits Rule on Hold

    Date:
    27 March 2015
    Type:
    News

    A federal district court has granted a request by the State of Texas to temporarily block implementation of a final Department of Labor (DOL) regulation requiring Family and Medical Leave Act (FMLA) benefits to be extended to same-sex couples legally married in a state that recognizes such marriages, even if they live in a state that does not recognize such marriages. The final regulation would have gone into effect today if not for the stay granted by the court.

  • Supreme Court Sets Same-Sex Marriage Argument Date

    Date:
    13 March 2015
    Type:
    News

    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.

  • How to Withhold on Supplemental Wages Using the Aggregate Method

    Type:
    How To

    Employees often receive supplemental wages, which are taxable and subject to income tax withholding, FICA, and FUTA. For employees who receive up to $1 million a year in supplemental wages, employers have several different withholding methods from which to choose. This How To shows employers how to withhold on supplemental wages under the aggregate method.