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
Employers are seeing significant changes when it comes to same-sex marriages and other relationships in the workplace. Several states recognize same-sex marriage and extend the same rights and benefits to both same-sex opposite-sex married couples.
The legalization of same-sex marriage potentially requires employers to provide benefits such as health care coverage and leave time to a broader range of employees, which may also have tax implications.
The FAQs provide answers to some of the most commonly asked questions about the dependent coverage requirements of the Affordable Care Act.
The Internal Revenue Service has released the calendar year 2015 inflation-adjusted amounts for health savings accounts (HSAs) as determined under § 223 of the Internal Revenue Code.
State references to the definition of "wages" in the Internal Revenue Code that were recently updated in Iowa, Kentucky, Maine, Minnesota, Nebraska, Oregon, South Carolina and West Virginia have been included in the State Internal Revenue Code Conformity - Chart in the Quick Reference Tool. The Taxation of Employee Compensation: Minnesota section of the Employment Law Manual has also been updated.
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.
The IRS issued Notice 2014-19 and related Frequently Asked Questions providing guidance on how qualified retirement plans should treat same-sex spouses following the Supreme Court's decision in United States v. Windsor. Employers must take action to ensure that plan documents and operations conform to requirements.
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.
Eighteen states have been added to the Taxation of Benefits section of the Employment Law Manual and existing states have been updated to reflect the current status of the taxation of health insurance benefits provided by an employer to an employee's same-sex spouse, civil union partner or domestic partner in all states that impose an income tax.
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.
HR guidance on the taxation of employee benefits.