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 2014!

  • 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.
  • Additional Medicare tax on high earners - An additional 0.9 percent Medicare tax (AMT) rate applies to single employees who earn more than $200,000 and to married couples who file joint tax returns and earn more than $250,000. For high earners, the total Medicare tax rate is 2.35 percent. For all other employees, the rate is 1.45 percent. The IRS issued final regulations, which apply starting January 1, 2014, governing the implementation of the AMT. The final regulations detail an employer's withholding obligation, and how it should treat repayment by an employee of wage payments received in a prior year for AMT purposes (e.g., sign-on bonuses paid to employees that are subject to repayment if certain conditions are not satisfied).
  • Health flexible spending account (FSA) rules relaxed - The IRS issued a new rule that modifies the "use it or lose it" rule for health FSAs and provides clarification regarding transition relief available for non-calendar year salary reductions. The change to the long-standing "use it or lose it" rule took effect October 31, 2013.
  • Taxation of benefits provided to same-sex spouses - The IRS 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. The Notice was issued in question and answer (Q&A) format and provides detailed examples of each scenario covered by the Q&As.

Author: Rena Pirsos, JD, Legal Editor

Latest items in Taxing Benefits

  • 2015 Pension Plan Limits Announced, 401(k) Deferral Limit Increases to $18,000

    Date:
    24 October 2014
    Type:
    News

    The Internal Revenue Service has announced the tax year 2015 cost-of-living adjustments affecting dollar limitations on benefits and contributions under qualified retirement plans and other inflation-adjusted amounts. Many of the pension plan limitations will increase for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Other limitations will not change because the relevant thresholds were not met.

  • Same-Sex Marriage Bans Fall in 13 States: Employment Law Manual, Chart Updated

    Date:
    20 October 2014
    Type:
    Editor's Choice

    The US Supreme Court declined to review challenges to three federal appeals court rulings striking down same-sex marriage bans in Indiana, Oklahoma, Utah, Virginia and Wisconsin, which also cleared the way for the legalization of same-sex marriage in Colorado, North Carolina, West Virginia and Wyoming. Bans also fell in Alaska, Arizona, Idaho and Nevada.

  • Employers Must File New Third-Party Sick Pay Recap Form for 2014: Employment Law Manual Updated

    Date:
    15 October 2014
    Type:
    Editor's Choice

    Employers must file the new Form 8922, Third-Party Sick Pay Recap, by February 28, 2015, in order to reconcile agent or insurer payments of sick pay to employees reported on Forms 941 and W-2.

  • Date:
    15 October 2014
    Type:
    Legal Timetable

  • New Third-Party Sick Pay Recap Filing Procedure, Form Required in 2015

    Date:
    10 October 2014
    Type:
    News

    Employers will be required to file new Form 8922, Third-Party Sick Pay Recap, for sick pay paid to employees by a third-party agent or insurer in 2014 in order to reconcile Forms 941, Employer's Quarterly Federal Tax Return, and Forms W-2, Wage and Tax Statement. Previously, a third-party payer of sick pay filed recap Form W-2, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration.

  • Conflicting Louisiana Same-Sex Marriage Decisions on Appeal: Employment Law Manual Updated

    Date:
    03 October 2014
    Type:
    Editor's Choice

    A federal district court upheld Louisiana's statute and constitutional amendment banning same-sex marriage, while a Louisiana state court ruled that these laws are unconstitutional.

  • Taxation of Employee Benefits: Louisiana

    Type:
    Employment Law Manual

    The value of health insurance benefits provided to an employee's same-sex spouse or partner and their dependents is taxable in Louisiana.

  • Indiana and Wisconsin Same-Sex Marriage Decisions Upheld: Employment Law Manual Updated

    Date:
    17 September 2014
    Type:
    Editor's Choice

    The 7th Circuit Court of Appeals upheld recent lower court decisions invalidating Indiana's and Wisconsin's laws banning same-sex marriage.

  • Taxation of Employee Benefits: Indiana

    Type:
    Employment Law Manual

    The value of health insurance benefits provided to an employee's same-sex spouse or partner, and/or their dependents, is taxable in Indiana.

  • Tax Treatment of Same-Sex Couple Benefits by State

    Type:
    Quick Reference

    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.