1	Northstar Chapter APA 2004 Year-End Seminar Presented By: Karen Klein CPP, Kristin Fink CPP , and Sharlene Smith CPP
2	Karen Klein, CPP Karen Klein, CPP is currently the Payroll Tax Consultant for the University of Minnesota. Among other duties, she tracks federal and state legislative developments impacting payroll operations, oversees Federal and State tax reporting compliance, assumes responsibility for University wide communications regarding matters of federal and state tax payroll policies and procedural changes, Foreign National tax issues and employment authorizations, and W-2/1042S year-end reporting. Ms. Klein has been with the University of Minnesota, for the most part, since 1988, serving as a Payroll Tax Specialist, Payroll Supervisor, and Payroll Tax and Accounting Manager before moving into her present position. Prior to coming to the University in ‘88, she held various other payroll positions giving her over 25 years of payroll experience. She is an active member of the Northstar Chapter of the American Payroll Association, serving currently as Vice-President, and has been a frequent speaker at local, state, and national conferences, presenting workshops on nonresident alien employment and taxation. Ms. Klein is a graduate of the University of North Dakota where she earned a BS degree in Business Administration. She obtained her CPP certification in 1994.
3	Kristin Fink, CPP Kristin Fink, CPP, has over 11 years of payroll experience. She is currently the HRIS Specialist for Payroll at GMAC-RFC. GMAC-RFC is a capital finance company with 3800 employees in 42 different states. She has been on the year end process team at GMAC-RFC for the last 4 years. Prior to GMAC-RFC, she was a Payroll Specialist at Allina Health Systems. Kristin has been a member of the Northstar Chapter APA for the past 3 years. Kristin received a B.A. in Business Management from Gustavus Adolphus College in St. Peter, Minnesota. She obtained her CPP certification in the fall of 2002.
4	Sharlene Smith, CPP Sharlene Smith, CPP is currently the Payroll Manager for GMAC/RFC, a capital finance company with 3800 employees in 42 states. Among other duties, she manages the Expat payrolls and Year-End processing. She has held various other payroll positions for a total of over 28 years of payroll experience. Sharlene has served on the board of the Northstar Chapter of the American Payroll Association for the past four years, including Past-President, and serving currently as Chairman. She has been a frequent speaker with the Northstar APA, and with other groups of which she has been a member. Ms. Smith is a graduate of the University of Central Florida where she earned a BS degree in Elementary Education. She obtained her CPP certification in 1995.
5	A bit of humor Being detail oriented, the nature of our job, especially at year end. AFTER receiving a lecture from my boss about paying attention to details, I decided to see if he practiced what he preached. When I prepared the payroll checks for the next pay period, I added two extra zeros to mine. Then I brought the batch in for his signature. I stood at his desk as time and again he wrote his name with a flourish — "Tom A Grandel." When he finished, he gave me the checks to distribute. Soon afterwards I opened mine. On the signature line, in my boss' elegant handwriting, was "Try And Getit."
6	Year-End Checklist Sample – U of M List Tasks and Assign Responsible parties and due dates:
7	Year-End Checklist Sample GMAC-RFC
8	Verifying Social Security Numbers IRS Regulation 31.6011(b)-2(b)(1)(i) requires employees to show their cards to employer when requested – if it’s available Ways to verify SSN Validate Name and SSN on W-4 Request SS Card as part of Payroll tax process after newly hired. Name Changes Program your system to identify invalid SSNs
9	Verifying Social Security Numbers SSA’s Employee Verification Service Match Name & SSN Phone (1-800-772-6270) – up to 5 SSNs Paper list – Up to 50 SSNs to Local SSA Office EVS Paper list up to 300 Magnetic Media – Tape or Diskette Complete SSA Publ. 20-004 to register Online at www.socialsecurity.gov/employer/ssnv.htm Hotline: 410-965-7140
10	Verifying Social Security Numbers EVS – What information to include SSN, Last Name, First name, Middle Initial, Date of Birth, Gender Requester ID Code EVS on the Internet Currently piloting, expecting to open to all employers in 2005 Set-up process attempt to verify SSN if there’s a mismatch
11	SSN Mismatches and IRS Penalties SSA matches first 7 characters of last name, and first initial of first name to employee social security record SSA sends “No-match” letter if your file has at least 11 mismatches and ½ of 1% of all W-2 forms have a mismatch IRS can access penalties for reporting incorrect SSN
12	W-2 Reporting – No SSN SSA Q & A at this year’s Congress If no SSN is available, zero fill SSN field See MMREF-1 specs, Page 26 If filing on paper, put “applied for” in the SSN field or can also use zeros if no SSN Incorrect SSN Use the incorrect SSN Put documentation in your files that you attempted to get correct number
13	Year-End Queries - U of M Out-of-balance OASDI & Medicare Gross and Tax Missing SSNs Multi-state taxes Combined state taxable balances <> federal taxable balances Employees with both SSN and ITIN Employees with no 1^st name Incomplete Addresses W-2 amount < 0 – Query after W-2 load Many queries related to 1042-S reporting
14	Year-End Queries – GMAC-RFC Lists Tax Manual Balance Adjustments Verify Employee’s Address Line 3 and 4 W-2 Totals by Year, Company, Box Total of Selected Deduction Codes Total of Selected Earning Balances NY State W2 info for EEs in NY Tax Balance Totals to tie out, Boxes 1-6 Tax Balance totals - Tie Box 14 Prints Sums of W-2 Boxes Lists W-2C Totals by Year, Company, Box List W2 info for an EE Physical Number of W2s created Lists W-2's to pull List of Deceased EEs
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16	Miscellaneous Tips Every Pay Period Payroll Report & Audit Checklist It is important to work off of a script, no matter how many times you have you have done the same job, and besides – what if someone has to step in and do your job, with little training! Just as important as the Year-End Plan is the per pay period Payroll Report and Audit Checklist, or whatever you call your step-by-step list of what to do to run your payroll through to completion (what we call Confirm). Keep it updated, it’s a good tool, and a good audit compliance documentation piece as well (thanks Sarbanes-Oxley). See our sample, it’s only 5 pages long!
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18	Year-end Notices to Employees Required notice – W-4 Notice IRS regulations 31-3402(f)(2)-1(c)(3) If filing status, exemption allowances or exempt status has changed since last filed W-4 Must provide notice before December 1 Information Memos Notify employees if you use the Special Accounting Rule for non-cash fringe benefits
19	State Law and Regulation Changes Louisiana – It you have employees in this state, be ready to add a new Company Holiday to your calendar in 2005. The state designated Dr. Martin Luther King, Jr.’s birthday as a mandatory legal holiday in the state effective 8-15-04. It is observed the 3rd Monday of January of each year. California – The decision you have been waiting for from California related to requiring SSN on paystubs has been reached, but it is not effective for a long, long time. Effective 1-1-08 you will have to make sure that last 4 positions of an employee’s SSN appear on pay statements!
20	State Law and Regulation Changes California – Employers that remit income taxes and unemployment insurance payments electronically must also make child support payments electronically, effective January 1, 2005 (A.B. 2358, Chapter 806). Minnesota - Effective July 2005, all unemployment insurance tax and wage reporting must be completed and submitted online. For more information visit the department’s Website at http://www.uimn.org/tax
21	State Law and Regulation Changes Unemployment Unemployment Question from APA List Serve Q: How do I handle employer state unemployment tax for an employee who lives in Florida (FL wage base is 7,000)? Fl Unemployment tax has been paid on first 7,000. Fourth quarter EE moves to Alabama where the wage base is 8,000. Do I pay Alabama unemployment tax based on the difference of the wage bases of 1,000 or do I start over in Alabama and pay on EE's first 8,000? Is there a rule that applies to all states if an employee relocates? A: In the situation you are describing, you only need to pay UI tax on the first $1,000 in taxable wages in Alabama. In all US States except one (Minnesota), the state accepts all taxable UI wages from the previous state in the same year as a credit towards its UI wage base. (Lucky Us!)
22	State Information Resources http://www.payroll-taxes.com/
23	State Information Resources http://workforcesecurity.doleta.gov/unemploy/sigprojul2004.asp
24	Annual Changes 2005 Social Security Wage Base and Tax Rate $90,000 Annual Wage Base 6.2% Tax Rate $5,580.00 Tax No change to Medicare Rate FICA coverage unchanged for Domestic ($1,400) and Election ($1,200) Workers
25	Annual Changes 2005 Qualified Benefit Plan - EGTRRA 415(b)(1)(A) Defined Benefit Plan - $170,000 415(C)(1)(A) Additions to defined contribution plan - $42,000 401(k) and 403(b) Elective Deferrals - $14,000 401(a)(17), 404(l), and 408(k)(3)(C) Compensation Amount - $210,000
26	Annual Changes 2005 Qualified Benefit Plan - Continued 408(p)(2)(E) SIMPLE elective deferrals - $10,000 457(e)(15) Elective deferrals for gov’t. and tax exempt - $14,000 408(k)(2)(C) SEP - $450 Catch-up Contributions 401(k), 403(b), 457 - $4,000 SIMPLE Plan – $2,000
27	Annual Changes 2004 Standard Mileage Rates – 2005 rates not yet available Business Mileage Rate - $0.375 Charitable purposes - $0.14 Medical & Moving Expenses - $0.14 2005 Federal Per Diem Rates Meal & incidentals, high-cost - $46 Meal and incidentals low-cost - $36 Combined federal, high-cost - $199 Combined federal, low-cost - $127 IRS Publ 1542 or gsa.gov/perdiem For bulletins click further from Federal Travel Regulation, then FTR Library, the Travel/Per diem Bulletins
28	Annual Changes 2005 Federal Per Diem Rates – continued Increase in the Standard lodging rate $55 to $60 Resulted in deletion of several existing per diem localities, and addition of others CONUS lodging rates range from $60 to $249 M&IE is unchanged $31, $39, $43, $47, and $51
29	Annual Changes Federal Standard Deduction and Personal Exemption Amounts 2005 Not released – as of 11/5/04 2004 Annual Personal Exemption - $3,100 2004 Annual Standard Deduction Married, filing jointly or qualified widow(er) $9,700 Married, filing separately $4,850 Head of Household $7,150 Single $4,850
30	Annual Changes Federal Tax Levies Federal law exempts a weekly portion of wages equal to the standard deduction + the employee’s personal exemptions allowed for the taxable year, divided by 52. IRS Publication 1494 generally available in Nov. Also included with each levy Advance Earned Income Credit Form W-5 expires December 31, 2004 2005 income amounts and AEIC payment limit hasn’t been released yet. Remember to give employees Notice 797
31	Taxation of Fringe Benefits When Considered Paid Non-Cash Fringe Benefits You may to handle as paid by the pay period, monthly, quarterly, or any other basis, as long as you report the benefits as being paid at least annually. Fringe Benefit Paid in Cash Must be included in income subject to withholding, depositing and reporting when paid. This includes nonqualified moving expense reimbursements which must be include when constructively received.
32	Taxation of Fringe Benefits Withholding The two options for withholding federal income taxes from fringe benefits: Imputing – add the value to the employee’s regular wages for a payroll period and calculate the taxes to be withheld on the total wages, or Withhold federal income tax on the value of the benefit at the supplemental rate of 25% in 2004 and 2005. (This option is only available if federal income tax was withheld from the employee’s payment of regular wages.)
33	Taxation of Fringe Benefits Special Accounting Rule This rule states that the value of taxable non-cash fringe benefits provided in November and December, may be treated as if paid in the subsequent year. Required to notify employees Cannot be used for transfer of real property Cannot be used for GTL, or nonqualified moving expense reimbursement
34	Taxation of Fringe Benefits Depositing Taxes Federal taxes must be deposited for the same period that the Employer considers the fringe benefit paid. If the ER does not withhold and deposit enough taxes, it must pay the EEs share of FICA taxes. It can collect the tax from the EE at a future date by deducting it from the EEs after-tax wages, but it must recover the income taxes before April 1^st of the following year.
35	Taxation of Fringe Benefits Supplemental Wages Supplemental Wages are generally wages in addition to Regular Wages, and can include: Tips Bonuses Commissions Overtime Pay Payments to EE for Non-Deductible Moving Expenses Non-Accountable Business Expense Reimbursements Taxable Value of Fringe Benefits
36	Taxation of Fringe Benefits Supplemental Wages Supplemental tax rule: When supplemental wages are paid separately from normal wages, withholding depends on whether or not tax was withheld on the employee’s last previous on-cycle confirmed payment of normal wages in the same pay group in the same calendar year: If no tax was withheld on the last previous payment of normal wages, calculate tax on supplemental wages using the Aggregate Method for supplemental wages paid separately. If tax was withheld on the last payment of normal wages, calculate tax using a flat percent rate as specified by the state, without regard for marital status or allowances.
37	Paying Employees’ Taxes Calculating Grossups When an ER pays taxes on behalf of an EE this is referred to as a “Gross-up” and the taxes become taxable wages. To determine the EEs gross-up use the following formula: Amount of Payment = Taxable Income 100% - % of EE Tax Due
38	Paying Employees’ Taxes Special Situations - Grossup Calculation Tax Percentages No OASDI OASDI 0 MED 0.0145 FED 0.27 ST CA 0.06 Total 0.3445 1.00 Reverse 0.6555 GROSS 991.61 OASDI 0 MED 14.378345 FED 267.7347 ST 59.496955 NET 650.2 AMOUNT 650.25 Grossup 341.61
39	Taxation of Fringe Benefits Taxable and Nontaxable Gifts Cash and Cash Equivalents One important point – cash or gift certificates are always taxable, regardless of the value of the certificate. Cash is cash, and cash is always taxable Non-Cash Gifts If an employee is given a non-cash gift of value, the market value of the gift is taxable wages to the employee. For example, if an employee is given a DVD player with a market value of $200 dollars, they should have $200 in taxable wages added to their earnings record for the year.
40	Taxation of Fringe Benefits Taxable and Nontaxable Gifts De minimis fringes An employer may provide certain property or services of small value to employees that are not taxable, if the following conditions are met: The value of the benefit is so small that accounting for it would be unreasonable or impracticable The employer must take into account the frequency with which it provides the benefit to all its employees in making this determination De minimis fringes can include the following: Occasional parties and picnics for all employees Occasional coffee mugs, water bottles, etc. Occasional tickets to sporting events or the theater Traditional holiday gifts (e.g. turkeys, candy) with a small value Coffee and doughnuts provided to employees Occasional meals, or supper money for employees who must work late There is not a specific amount for de minimis fringes. The IRS has never set a specific dollar maximum on the value before it becomes taxable. Each benefit is evaluated in relation to the circumstances at the organization where it is provided.
41	Taxation of Fringe Benefits Moving expenses Best source for information is IRS Pub. 521 The only expenses that are non-taxable (with no dollar limit on the deduction) are: Expenses incurred in moving household goods and personal effects from the employee’s old residence to the new residence Traveling (excluding meals and any mileage reimbursement over $0.14 per mile) For these expenses to be non-taxable they must meet the qualifications listed in IRS Pub. 521
42	Taxation of Fringe Benefits Moving expenses – cont. Expenses that are tax deductible by the employee if they had paid the expenses on their own Expenses an employee did not deduct in a prior year Are not reported in box 1,3, or 5 of the W2 Must be reported in box 12 of the W2 with Code P
43	Taxation of Fringe Benefits Group Term Life Insurance Employer Provided GTL under $50,000 is a tax free benefit The value in excess of $50,000(less any employee after-tax payroll deduction) is a taxable benefit The taxable amount is based on a “Uniform Premium Table” issued by the IRS of code 79 then utilizing a GTL standard calculation On the taxable benefit, the employer can elect to withhold only social security and Medicare (similar to other fringe benefits) but must report as federal income (and where applicable for state income) Must be reported in Box 12 with a code C for Group term life
44	Taxation of Fringe Benefits Group Term Life Insurance – cont. Example calculation: Group term life coverage $100,000 Less the $50,000 of non-taxable Total taxable value $50,000 Looking at the employees AGE of 47 their taxable GTL cost Factor is $0.15 Employee contributed $5 {($100,000-50,000)x.001xGTL factor of $0.15}= $7.50 Less the $5 employee after tax deduction = $2.50 Taxable premium value
45	Taxation of Fringe Benefits Educational Assistance Educational assistance can be excluded from the employee’s income if the below requirements are met: Maintains or improves skills required in your present job; Serves a business purpose of your employer and is required by your employer, or by law or regulations, to keep your present salary, status, or job. Your expenses are not deductible if the education is required to meet the minimum educational requirements of your job, or is part of a program of study that can lead to qualifying you in a new trade or business. For non job related tuition and other special rules refer to Topic 513 on the IRS website.
46	Taxation of Fringe Benefits Loans to Employees Comic relief suggestion - “Just say no!” And make sure your policy says that too. Advances or draws of the type typically provided for commissioned salespeople normally are taxable wages when paid. However, if the employee signs a legally-binding document promising to repay any unearned advance, the advance or draw is then treated as an employee loan rather than wages. Employee loans are not subject to income tax withholding, FICA, FUTA, or wage reporting unless they exceed $10,000. As the employee earns commission against the advance or draw, the amounts earned are taxable as wages (and reduce the outstanding “loan” to the employee). The appropriate employment taxes must be withheld, paid, and reported as earned commissions. The treatment of an advance as an employee loan takes on significance if the employee terminates with an unearned advance outstanding. If the employee repays the unearned advance, the repaid amount is not considered wages; no employment taxes or wage reporting applies. However, if the employee does not repay the unearned advance ( the employer forgives the loan) the unearned amount becomes wages subject to employment taxes and wage reporting. While the loan itself is not considered wages or income, if amounts exceed $10,000, there is imputed income if the loan is interest-free or at a below-market interest rate. (Special rules apply for bridge loans provided to relocated employees, for example.) The amount of income that must be recognized is the difference between the interest charged (if any) and the IRS current rate of interest. This imputed income is subject to FICA and FUTA and reported as wages on the employee's Form W-2, but federal income tax withholding is not required.
47	Taxation of Fringe Benefits Deferred Compensation
48	Taxation of Fringe Benefits Deferred Compensation
49	Taxation of Fringe Benefits Deferred Compensation
50	Taxation of Fringe Benefits Deferred Comp Plan- continued Non-qualified plan May favor highly comp employees Social security and Medicare taxable when the service is preformed or when the employee no longer has a risk of forfeiting the compensation (IRS Code 3121 (v)) Federal and state taxable Under an Un-funded by employer plan –when the payment is made to the employee Under a funded by employer plan- when the employees rights to the wages are no longer subject to risk or forfeiture
51	Taxation of Fringe Benefits Stock Options Stock Option is a right given to an employee to purchase company stock at a fixed price over a stated period. There are two categories of stock options; statutory (qualified) options, and nonstatutory (nonqualified) options. The American Jobs Creation Act of 2004, impacts the employment tax treatment of statutory stock options, extending it indefinitely. Upon exercise of statutory options, no income is recognized for FICA, FUTA or FIT purposes, under the law.
52	Taxation of Fringe Benefits Stock Options - Nonqualified Nonqualified stock options are generally discriminatory because they benefit key employees. Selected employees are given an opportunity to purchase stock at a future time at a price specified by the employer. On the day the employee exercises the option, the difference between the price paid and the fair market value determines the amount of ordinary income subject to federal income tax withholding. The options are usually subject to FICA, and FUTA when they exercise their option.
53	Taxation of Fringe Benefits Military Pay Latest Hot Topic around the APA. Refer to handout for the information from the IRS website. Research what your company policy says and what you do as a company. Consult your legal department before making any changes.
54	Taxation of Fringe Benefits Third Party Sick Pay Sick Pay paid to an employee by a third party under a insurance arrangement This requires special treatment at year end because the IRS reconciles the Social Security and Medicare wages reported on the Form 941 to the W2’s. In some arrangements you may have the third party submit the reporting and W2’s on your behalf. (Depending on the state and the Insurance contract.)
55	Taxation of Fringe Benefits Third Party Sick Pay Questions to review??? Is the plan self insured by the company Where are the payments to the employee being processed and tax reported What percentage of the premiums are the employee paying and the company paying (if any) Was the premiums paid through a section 125 plan Is the plan administered by a insurance arrangement
56	Taxation of Fringe Benefits Third Party Sick Pay 3rd party sick payments are generally taxable if the contribution is under a separate plan: Funded by an employer contribution Funded by pretax deductions Where employer and employee both contribute a percentage of the income is taxable to the employee based on the contribution of premiums percentage Example: employee pays 50% of premium and employer pays 50% of premium- then 50% of wages is taxable
57	Taxation of Fringe Benefits Third Party Sick Pay Taxation of 3rd party sick payments under an “Agent” insurance relationship: Contract relationship with Insurance Agent Agent normally makes payments to employee Employee Portion of FICA tax is withheld Employee receives report of payments made and taxes withheld and loads into payroll system Employer submits Employer share of FICA tax Difference between “gross income” and taxable income reported in on W2 in box 12 with code “J” Nontaxable sick pay
58	Taxation of Fringe Benefits 3^rd Party Sick Pay Reporting W-2 Box 14—Income tax withheld by payer of third-party sick pay. Complete this box only if you are the employer and have employees who had income tax withheld on third-party payments of sick pay. Show the total income tax withheld by third-party payers on payments to all of your employees. Although this tax is included in the box 2 total, it must be separately shown here.
59	Principle of Constructive Receipt Actually or Constructively Paid – Wages have been made available to the employee without “substantial limitation or restriction”. Checks Mailed – Once check is delivered to the employee’s home. Postdating or backdating checks – Regardless of the date on the check it is based on receiving without “substantial limitation or restriction”. Why is this important? – Taxes are due based on payment date and W2 information is also based on payment date.
60	Processing Repayments of Overpayments A bit of humor - [ << ] [ Paycheck Error ] [ >> ] A building contractor was being paid by the week for a job that was likely to stretch over several months. He approached the owner of the property and held up the check he'd been given. "This is two hundred dollars less than we agreed on," he said. "I know," the owner said. "But last week I overpaid you two hundred dollars, and you never complained." The contractor said. "Well, I don't mind an occasional mistake. But when it gets to be a habit, I feel I have to call it to your attention."
61	Processing Repayments of Overpayments Background Constructive Receipt Rule - IRS Regulation 1.451-1 - Items of income are includible in gross income when actually received. IRC Section 461 - Deduction or credit for income tax purposes is allowed only in the year in which the payment representing the deduction is made.
62	Processing Repayments of Overpayments Repay in Current Year IRC section 6413(a) - ER can apply credit to the EE FIT, SIT, OASDI & Medi attributable to excess income Written Receipt showing date & amount repaid (reg.31.6413(a) & 31.6413(a)-1(b) Pays back Net Repay in Subsequent Year Cannot credit previous year FIT if either 941 or W-2 have been filed. EE given credit for OASDI & Medicare taxes only EE can take deduction on 1040 (Publ 525) Pays back Gross (adjust for FICA with consent)
63	Processing Repayments of Overpayments Employer Filing Responsibilities Repay in Current Year Report adjustments on Forms 941c and 941 during the same calendar year. No W-2c adjustments necessary Repay in Subsequent Year Report OASDI and Medi only on 941c and 941 - or 941c and 843 Furnish W-2c for OASDI and Medi only Retirement Plan issue – Talk to your Benefits Department
64	Processing Repayments of Overpayments Example: Employee terminated on October 15th 2004 but was paid on October 31st in error. Employee Repayment in Current Year Employee repays net File 941/941c to adjust FIT, OADSI, and Medicare
65	Processing Repayments of Overpayments Example: Employee terminated on October 15th 2004 but was paid on October 31st in error. Repaid in Subsequent Year Employee repays gross (less FICA with signed consent) W-2c for FICA Provided EE with letter for personal tax deduction purposes (refer to Publ 525) File 941c with 941 or 843 for EE and/or ER FICA refund
66	Processing Repayments of Overpayments Repayment of Gross-up in Subsequent Year… Employee repays gross (gross-up) pay. Refund FICA and provide W-2c for OASDI and Medicare only Provide letter for employee’s personal tax return deduction
67	Agency Guidance IRS Executive Compensation Compliance Strategy Selected 2 dozen case from 5 industry groups for review Matching corporate returns with individual 1040 returns of corporate officers Focusing on 8 areas Nonqualified deferred com, stock-based compensation Million-dollar cap on compensation, Golden parachutes Split-dollar life insurance, Family limited partnership Asset protection programs Fringe Benefits
68	Agency Guidance Establishing Meal & Entertainment De Minimis Fringe Benefits Issued guidance providing a statistical sampling method to use when determining amount of M&E expenses not subject to 50% limitation When employer provides in-kind meals to employees as de minimis fringe benefits Rev. Proc, 2004-29, 2004-20 IRB 918 Effective for tax years ending on or after May 3, 2004
69	Agency Guidance Health Benefit for Dependent Domestic Partner is not income LTR 200339001, 6-13-03 Annual certification to qualify as dependent If not dependent, then considered taxable income to the employee, unless coverage is paid with after-tax dollars Tuition forgiveness excluded from income LTR 200339017, 6-17-03
70	Agency Guidance No Constructive Receipt – Elect future PTO to cash LTR 200351003, 9-16-03 PTO plan that allows employees to convert future leave time to cash compensation Contributions of Leave Time to Retirement Pans Not FICA Eligible LTR 200351002 9-5-03 Mandatory plan where used leave at retirement or termination automatically contributed to the retirement plan IRS considered it employer contributions
71	Court Decisions Severance pay/FICA litigation - Pending Payments under reduction-in-force program that was voluntary were FICA wages Where separation was involuntary – payments not subject to FICA Until the decision is finalized – continue to withhold FICA on severance payments Severance payments not deferred compensation Kraft Foods salary continuation plan for involuntary separation Employees did not accumulate benefits according to specific services
72	Court Decisions Termination for refusal to sign Form W-4 – Not civil rights violation Employee considered Social Security a voluntary system and refused to participate Disclosed SSN but refused to submit a W-4 and was terminated. Court determined that the termination didn’t fit the criteria of a civil rights violation Employer is required by law to withhold and doesn’t need employees permission
73	Common Pay Agent Agent files Form 2678, employer Appointment of Agent with IRS Agent authorized to file returns using one EIN instead of multiple filings under separate EINs Agent files separate W-2s for each employer Agent EIN in Box b In Box c Name of agent Agent For [name of employer] Address of agent
74	Common Paymaster Two or more related corporations concurrently employ one or more employees Total FICA and FUTA taxes as if paid by one employer General common paymaster rule (IRC Section 3121(s) states that whoever disburses the funds is the common paymaster Can have one check, or separate checks Common Paymaster pays the tax and files the 941 and W-2
75	Forms Review Form 941 – New and Revised effective with the 1^st Quarter 2005 Form 941c can NEVER be filed alone File with a 941 or 843, Claim for Refund
76	Forms Review When to File Employee copies – January 31, 2005 SSA Magnetic Media – February 28, 2005 Electronic File – March 31, 2005 Where to file – Social Security Administration, AWR Magnetic Media Processing, 5-F-17, NB, Metro West Via US Postal Service: P.O. Box 33009, Baltimore, MD 21290-3009 Via Private Carrier: 300 N. Green Street, Baltimore, MD 21290-0300 Diskettes via Postal Service: P.O. Box 33014, Baltimore, MD 21290-3014
77	Forms Review –W-2 Changes Health Savings Account (HSA) – New Code W $ signs removed from Copy A Online Filing of W-2s (if you don’t have many) SSA Business Services Online – Create Forms W-2 Online Can print out forms for your employees and file employer online Distributions from 457 Plan reported on 1099-R – Not W-2 NO ITINs on the W-2 If using substitute W-2 – see Publ. 1141
78	Forms Review Incorrect Addresses on W-2 Can put in new envelope with correct address Issue “Reissued Statement” W-2 with corrected address Do a W-2c to correct the address Undeliverable W-2s – keep for 4 years If it was reissued with correct address – doesn’t have to be kept
79	Forms Review – Form W-2 Box 10 – Dependent care benefits Report amount provided by employer – not the amount reimbursed to employee If over $5,000, excess is taxable and reported in boxes 1, 3, and 5 Box 11 – Nonqualified plans SSA uses this box to determine if amounts reported in boxes 1, 3, or 5 represent prior years earnings Report deferrals & interest that became taxable in current year – but were for previous year service DO NOT report deferrals that are for current year services
80	Forms Review – Form W-2 Box 12 – List of Codes Code A – Uncollected Social Security or RRTA tax on tips Code B – Uncollected Medicare tax on tips Code C – Cost of Group-Term Life Code D – Section 401k contributions Code E – Section 403b contributions Code F – Section 408k contributions Code G – Section 457 contributions Code H – Section 501 contributions Code I – Not used at this time
81	Forms Review – Form W-2 Box 12 – List of Codes Code J – Nontaxable Sick Pay Code K – 20% excise tax on excess golden parachute payments Code L – Substantiated employee business expense reimbursements Code M – Uncollected Social Security or RRTA tax on cost of group term life insurance coverage over $50,000 Code N – Uncollected Medicare tax on cost of group term life insurance coverage over $50,000
82	Forms Review – Form W-2 Box 12 – List of Codes Code P – Excludable reimbursed moving expenses Code Q – Not used at this time Code R – Archer MSA contributions Code S – SIMPLE retirement account contributions Code T – Employer-provided adoption benefits Code V – Income from the exercise of nonstatutory stock options Code W – Employer contributions to a Health Savings Account
83	Forms Review – Form W-2 Box 13 Check Boxes Retirement Plan Check Box Employee was an “active” participant, even if chose not to participate (defined benefit plan) For defined contribution plans if employee receives allocations in the plan year ending during the calendar year. If in a collective bargaining union retirement Do not check for contributions made to nonqualified deferral or a 457 plan
84	Forms Review – Form W-2 Box 13 – Check boxes Third-party sick pay Check if you’re the 3^rd Party Payer filing the Forms W-2 Check if you’re the employer reporting 3^rd Party sick pay paid by the Third Party
85	Forms Review – Form W-2 Box 13 – Check boxes Statutory employee: Employee is a statutory employee whose wages are subject to FICA but not FITW. Agent-drivers or commission-drivers: engaged in distributing meat, vegetables, fruits, baked goods, beverages (other than milk), laundry or dry-cleaning services. Full-time life insurance salespersons: primarily working for one life insurance company. Homeworkers: goods or materials provided by employer but working out of employee’s home. Traveling or city salespersons: soliciting orders from wholesalers, retailers, contractors, restaurants, operators of hotels or similar establishments.
86	Electronic Delivery of W-2 to Employees IRS issued final regs in February 2004 69 F.R. 7567, 2-18-04 Employee consent Required Disclosures Format Posting Notice Retention
87	Electronic Delivery of W-2 to Employees Consent Employee must affirmatively consent to receive W-2 electronically Must not have withdrawn consent before form is furnished Consent must be made in a manner that demonstrates the employee can access W-2 Employee can withdraw consnet
88	Electronic Delivery of W-2 to Employees Required Disclosures – Must contain the following Scope & duration of a consent to receive electronic W-2 Ability to withdraw and procedures to do so Whether request for paper will be treated as withdrawal Hardware/software required to access, print, and retain W-2 Right to receive paper if consnet is not given Conditions under which the employer will stop providing electronic W-2 (termination) Procedures for updating employees contact information
89	Electronic Delivery of W-2 to Employees Format Must comply with revenue procedures on substitute statements Posting Require employer to post W-2s on he web site accessible to employees on or before January 31 Notice Employer required to notify employee when W-2 is available Email: IMPORTANT TAX RETRUN DOCUMENT AVAILABLE in subject line Retention Must be available on the web through October 15
90	W-2 File – MMREF-1 Tax year 2004 is last year SSA will accept magnetic tape or cartridge Tax year 2005 is last year to submit diskette MMREF-1 layout is for W-2 Must obtain PIN from SSA, whether filing on tape, cartridge, diskette, or electronically MMREF-2 is for W-2c Cannot file on paper if more than 250
91	Filing W-2s to SSA Drop Dead Dates Mag Media (diskette, tape, or cartridge) February 28, 2005 Form 6559 required with tape or cartridge Electronically March 31, 2005 Do Not Use Form 6559
92	Electronic W-2 Reporting SSA Electronic Reporting Reasons for Filing Electronically 2004 - SSA last year to accept tape or cartridge submissions 2005 - SSA last year to accept diskette Extended filing period Download file format verification software (AccuWage) Immediate confirmation of receipt Check status of data submissions Can send electronic message to SSA Don’t have to file Form 6559
93	Electronic W-2 Reporting SSA Electronic Reporting PIN/PASSWORD REGISTRATION Business Services Online Registration information and Instructions www.socialsecurity.gov/employer/reg.htm www.ssa.gov/bso/bsowelcome.htm Select Registration Or Call 1-800-772-6270 weekdays
94	Electronic W-2 Reporting SSA Electronic Reporting Information Needed to get a PIN Company EIN Your SSN Your Date of Birth email Address Mailing Address Company Name Company Phone Number Company Address Optional - Your phone number & fax
95	Electronic W-2 Reporting PIN issued immediately Password mailed within 10-14-days PIN can be used indefinitely, but… MUST change Password once a year If password expires must re-register for a new PIN and password Call 1-800-772-6270 if you have PIN/Password problems
96	Electronic W-2 Reporting How to connect with BSO Access Internet at www.socialsecurity.gov/employer Select How to File Select Business Services Online Enter PIN & Password Then follow the Prompts to upload your file
97	Electronic W-2 Reporting Data Requirements Must be ASCII-1 character set (American Standard code for Information Interchange - 1) Virus scan file before uploading If using record delimiters, follow special instructions Name it anything you want If a large file - Zip it PKZIP compression Software can be downloaded from SSA
98	Electronic W-2 Reporting Testing Download & use Accuwage Can submit a Test by selecting “Test” option on Upload Wage Reports Page Can use any file for testing Only verifies successful transmission - data not read & test file is deleted More info in SSA Mag Media specs. Dated April 2004 (MMREF-1)
99	Electronic W-2 Reporting Other Concerns… Get buy-in from Your Data Security Department Firewalls Maybe separate computer for SSA & IRS Filing No Email or additional programs on designated computer Delete file from computer when uploaded Set-up Internal Procedures on how the file will be downloaded and filed
100	Filing State W-2s States where W-2s can be filed electronically Wisconsin http://www.dor.state.wi.us/eserv/w-2.html North Dakota Will accept files by email NOTE: File is not secure until it reaches ND server Employee with earnings in more than one state – Getting 2 W-2s 1^st W-2 has Federal and one state 2^nd W-2 should have other state and Notice:Federal W-2 Data is on Separate W-2”
101	IRS FIRE System FIRE (Filing Information Returns Electronically) System Now on the Internet! http://fire.irs.gov Use Standard ASCII format Can use Mag Media TCC for Electronic Filing Extended Test Period to Feb. 15th Create PIN & Password (MUST change password yearly See Publ 1220 for more information
102	Deceased Employee Compensation Wages paid in year of death Wages reported on 1099-Misc, Box 3 (Other Income) – Do not withhold income tax from wages OASDI and Medicare wages and tax reported on W-2 Wages paid in year after death Wages reported on 1099-Misc, Box 3 – Do not withholding income tax from wages Exempt from OASDI and Medicare Back-up withholding rules apply if you don’t have TIN for estate of beneficiary
103	Contact List & Websites
104	Contact List & Websites
105	Email contacts for today’s presentors k-klei@hr-mail.ohr.umn.edu Sharlene.Smith@gmacrfc.com Kristin.Fink@gmacrfc.com
106	Got Questions? Thank you for attending today! Have a great Year End!