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HR Support on Taxing Benefits
Editor's Note: Many health care reform law provisions affect payroll.
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 Patient Protection and Affordable Care Act (PPACA) of 2010 includes several new payroll related provisions that employers are required to comply with starting in January 2013 and beyond:
- Form W-2 reporting of health insurance costs - Beginning with Forms W-2, Wage and Tax Statement, that employers are required to provide to employees in January 2013, 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 - Beginning with wages paid in 2013, an additional 0.9 percent Medicare tax 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 these high earners, the total Medicare tax rate is 2.35 percent.
- New health flexible spending arrangement (FSA) deferral limits - In plan years before 2013 there was no statutory limit on the dollar amount of employee pre-tax contributions that an employer could permit to be contributed to a health FSA under its cafeteria plan. Beginning with the 2013 plan year, the maximum amount of an employee's pre-tax contributions for a year is limited to $2,500. Beginning with the 2014 plan year, the maximum will be inflation-adjusted annually.
- Medical loss ratio (MLR) rebates - The Internal Revenue Service has clarified that MLR rebates made to employees that are attributable to their pre-tax contributions are fully taxable wages, regardless of whether employees receive cash rebates or a reduction in their current year premium.
Author: Rena Pirsos, JD, Legal Editor
Latest items in Taxing Benefits
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2014 Health Savings Account Contribution Limits Added
The Taxation of Employee Benefits section of XpertHR's Payroll chapter has been updated to include the 2014 inflation-adjusted health savings account contribution limitations as determined under § 223 of the Internal Revenue Code.
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Health Savings Account Limitations Adjusted for 2014
The Internal Revenue Service has released the calendar year 2014 inflation-adjusted amounts for health savings accounts (HSAs) as determined under § 223 of the Internal Revenue Code.
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Taxation of Employee Benefits
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.
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Employers: Deadline to File Protective Payroll Tax Refund Claim Nears
Employers that paid federal income tax and Social Security and Medicare taxes on the value of health care benefits provided to employees' same-sex partners for tax years 2009 and after should consider whether they want to file a protective refund claim while they await the US Supreme Court's decision in the pending Defense of Marriage Act case, United States v. Windsor.
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New Section Added on Maine Taxation of Employee Benefits
XpertHR has added a new section to the Employment Law Manual explaining whether employers in Maine must withhold payroll taxes on health insurance benefits provided to employees' same-sex spouses.
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Taxation of Employee Benefits: Maine
Maine excludes from taxable income health insurance benefits for employees' same-sex spouses and their children.
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Transportation Resource Center for HR: Payroll
XpertHR's Transportation Resource Center for HR: Payroll helps transportation industry employers handle their most vexing employment issues by bringing relevant resources together in one place for easy access.
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IRS Releases 2013 Employer Tax Guides, Levy Tables and Corrected Form W-4
The Internal Revenue Service (IRS) has released the 2013 versions of some of the key publications that help employers meet their payroll tax responsibilities: Circular E, Employer's Tax Guide (Publication 15); Employer's Supplemental Tax Guide (Publication 15-A); Employer's Tax Guide to Fringe Benefits (Publication 15-B); and Publication 1494, Tables for Figuring Amount Exempt from Levy on Wages, Salary and Other Income. The IRS has also re-issued a corrected version of the 2013 Form W-4, Employee's Withholding Allowance Certificate.
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IRS Issues Guidance on How to Apply the Retroactive Increase in Excludable Transit Benefits
The IRS has issued special administrative procedures allowing employers to correct the retroactive increase in the maximum excludable amount for 2012 qualified transit benefits on fourth quarter Form 941 and Form W-2.
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Impact of the American Taxpayer Relief Act of 2012 on Payroll
The American Taxpayer Relief Act of 2012, signed into law on January 2, 2013, made several payroll related changes. To help employers understand the impact of the new law, XpertHR has updated several sections of the Employment Law Manual and all related Worked Examples and How To tools.
About this topic
HR guidance on the taxation of employee benefits.
Taxing Benefits: Key Items
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Taxation of Employee Benefits
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Employee Benefits Overview
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Health Care Reform Resource Center
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What Employers Should Know About the Affordable Care Act (ACA)
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SSA and IRS Announce 2013 Cost-of-Living Increases and Inflation-Adjusted Amounts
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How is a distribution from a 401(k) plan taxed? Does it matter if it's a hardship withdrawal?
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What happens if a cafeteria plan is disqualified?