payrollguy2

2018 Tax Tables and W-4 Changes

June 12th, 2018

The Tax Cuts and Jobs Act new tax law was enacted in December 2017, with an effective date of January 1, 2018.  Due to the last minute rush to implement provisions of the new federal tax law, IRS tables and W-4 Forms for 2018 are not consistent with changes in the tax law — thus, it is more important than ever that employees closely monitor their 2018 federal income tax withholdings to avoid potentially large tax obligations due when their 2018 Form 1040 is filed by April 15, 2019.

2018 IRS TAX WITHHOLDING TABLES
The IRS released new withholding tax tables for year 2018, to be implemented by employers no later than February 15, 2018.  The new tables include the new, reduced tax rates for 2018, which will generally result in increased “take-home pay” in employee paychecks.  HOWEVER, the new tax law eliminated tax deductions for “exemptions/allowances”, restricted certain itemized deductions, increased the “standard deduction” for non-itemizers, and also increased tax savings from the child tax credit for taxpayers with children below age 17.

FORM W-4
The IRS has advised employers to use the new tax tables in conjunction with employee 2017 W-4 Forms.  The problem is that the new tax law eliminated deductions for personal and dependency exemptions, and therefore the “M-5″, “S-0″, etc W-4 Form’s number of “exemptions/allowances” are not relevant for 2018 taxes.
NOTE — The IRS has indicated they are working on revised 2018 W-4 Forms to be consistent with the new tax law (no tax savings for “exemptions”, increased standard deductions and child tax credits, etc), but they have given no time line for their release of new W-4 Forms beyond “later in the year”.

IRS ONLINE WITHHOLDING CALCULATOR
The IRS is encouraging taxpayers to review their year-to-date 2018 federal tax withholdings by entering their tax information into the IRS online calculator — once the IRS has adjusted their online tax calculator for changes in 2018 tax law.  The IRS online calculator is expected to be on their website by the end of February.
The IRS is estimating that 90% of wage earners will see increased take-home pay in their 2018 net paychecks.  To avoid unexpected taxes due April of 2019 based on under withholding of federal income tax during 2018, we recommend that employees take the following action steps:
  • Check their withholdings with the IRS online calculator once it is posted on the IRS website by late February;
  • Complete a 2018 W-4 Form once the IRS completes their revision of the current W-4 Form; and
  •  Determine the ratio of year 2018 federal income tax withholdings to taxable wages from your 2018 check stub.  Compare that “ratio” of tax to gross wages (excluding pre-tax retirement plan and health insurance employee deductions) to the “rates” on your 2016 and 2017 Form 1040s (Form 1040, page 2, line 63, “total tax” divided by Form 1040, page 1, line 7, “wages”).  Is your 2018 “ratio” similar to your 2016 and 2017 Form 1040 ratios?

FEDERAL INCOME TAX ON BONUSES, COMMISSIONS, ETC
We recommend that employers use the just released 2018 supplemental tax rate of 22%, which is lower than last year’s rate of 25%.

IN CONCLUSION
It is more important this year than ever that taxpayers review their 2018 federal income tax withholdings to avoid possible tax under payments.  This is especially true for those who itemize deductions, 2 wage earner couples, taxpayers with dependent children, and those with business or rental income.
Also, be advised that AccuPay has a question pending with Indiana as to continued use of “exemptions/allowances” on Indiana WH-4 employee forms.  We anticipate that Indiana will continue to use “exemptions/allowances” in their 2018 tax tables, as opposed to following federal law and eliminating them — stay tuned for Indiana’s clarification as to their 2018 state/county tax withholding tables!
If you or your employees have any questions about 2018 federal income tax withholding amounts, call or email your processor and our Tax Department will answer your questions.
Facebooktwittergoogle_pluslinkedinmailby feather

New W-4 Form for Withholdings

May 1st, 2018
New W-4 Form for Withholdings
As we discussed in our PayDay a month ago titled “2018 Tax Tables and W-4 Changes” the IRS did just release both a new 2018 W-4 and an online withholding calculator which taxpayers are encouraged to use to determine if their 2018 federal tax withholdings are sufficient to avoid large federal income tax balances due when Form 1040’s are filed next April for year 2018.
Our Recommendations
Due to significant changes in “core areas” of 2018 tax laws pertaining to all individuals, we strongly recommend that taxpayers/employees do as follows:
  • Use the IRS online calculator to project 2018 federal income tax withholdings.  Be careful since some of the terminology may be confusing.  The IRS has provided FAQs to assist taxpayers in using the calculator.  You will need copies of your year-to-date pay stubs to correctly use the IRS withholding calculator;
  • Consider providing a new 2018 Form W-4 to your employer.  Your new W-4 for 2018 can be based on the W-4 worksheets OR by using the online withholding calculator ; and
  • As our previous PayDay of a month ago suggested, calculate your 2017 Form 1040 ratio of federal income tax on “line 63″ divided by total taxable wages from your 2017 Form 1040, line 7.  Compare this 2017 tax “ratio/percentage” to your new W-4/online calculator 2018 federal income tax withholding divided by total wages.  Your 2018 ratio of federal income tax to wages should be slightly less than your 2017 federal tax to wages ratio.

When you complete a new 2018 W-4 by the worksheets or online IRS calculator, pay special attention to the “child tax credit” calculations.  Federal tax credits for your children have increased significantly from 2017 to 2018 per the new tax law.

Employer Responsibilities

Employers can continue to use 2017 W-4 forms for ongoing employees.  Employees hired March 1, 2018 or later should ask their “new hires” to complete the 2018 W-4 forms.  Also, employees who do choose to complete a 2018 W-4 should have future tax withheld based on a revised 2018 W-4.

Employers may choose to notify their employees about the releases of both the 2018 W-4 form and the IRS online withholding calculator.  Feel free to forward this PayDay email to your employees if you wish to do so.

Concerns About the 2018 W-4

 The new 2018 tax law does not allow personal exemptions/allowances, resulting in no tax savings for exemptions/allowances, and has increased tax savings in 2018 via increased standard deductions, generally reduced tax rates/brackets, and increased child tax credits.

The new 2018 W-4 still calculates “exemptions/allowances”, based on the new W-4 forms/worksheets and the IRS online calculator.  Since the number of exemptions in 2018 produces zero tax “value”, it is a puzzle/quandary as to how W-4 forms with allowances is relevant in calculating correct federal tax withholding.  The IRS has not been able to explain how “allowances/exemptions” on 2018 W-4 forms produce accurate tax withholdings since exemptions are not tax-deductible in 2018.

In Conclusion

We encourage employers to make employees aware of the new 2018 W-4 forms and online tax withholding calculator.  Employers should provide “new hires” with the 2018 version of the W-4.

Indiana should soon be addressing how the federal elimination of tax exemptions affects their WH-4 withholding forms, which are also based on “allowances/exemptions”.  We suspect that Indiana will leave their current system of “exemptions” in place, as many other states have already announced.  We will advise you about any Indiana withholding changes as they occur.

If you have any questions about 2018 federal income tax withholdings or the 2018 W-4 forms, contact your payroll specialist at AccuPay.

Facebooktwittergoogle_pluslinkedinmailby feather

COMING SOON – IRS/ACA PENALTY NOTICES

November 27th, 2017
EXECUTIVE SUMMARY ABOUT IMMINENT IRS AFFORDABLE CARE ACT/OBAMACARE EMPLOYER PENALTY NOTICES
The IRS has recently indicated that they will be mailing out their “first ever” proposed assessment notices to employers who the IRS believes may owe “penalties” (employer shared responsibility payments) for not providing ACA compliant insurance coverage to 95% (70% for 2015) of their full-time employees and their dependents (but not spouses). The understanding among ACA experts is that the initial notices will be for year 2015, and that notices for year 2016 will be mailed sometime during 2018. Year 2015 penalties would apply only to “applicable large employers” (ALE), who are employers of all types (no exception for non-profits, churches, government entities), who during year 2014 employed a monthly average of 50 or more “full-time equivalent employees”, which is a combination of employees who worked 30+ hours per week (ACA defines “full-time” as 30 hours or more per week) plus part-time employees who worked below 30 hours per week, whose hours are totaled and converted into what the ACA calls “full-time equivalents”——Example—–2 employees working 15 hours per week equals 1 “full-time equivalent” employee.

Employers of all types and sizes should keep their eyes open to possible IRS ACA notices and should carefully review them for accurate responses.
 ACA experts are concerned that many, and perhaps a majority, of these “first time ever” ACA notices could be incorrect since they are computer generated based on gathering data from multiple sources into the IRS system for calculation of possible employer penalties, which the Treasury Inspector General’s audit report of April 7,2017, concluded was inefficient and inaccurate in many respects. Information for proposed assessments of employer penalties is based on pulling and integrating data from the employer-prepared ACA 1095/1094 reports prepared both by employers and insurance companies, information about individuals obtaining subsidies from the ACA “marketplaces,” which various reports indicated were not thorough in analyzing whether a person was entitled to premium subsidies, and also from individual Form 1040 tax returns which reported and calculated premium tax credit amounts as well as indicating whether a taxpayer had enrolled in ACA complaint health insurance (with zero proof required in the Form 1040 for assessment of the individual penalties)

Summary Conclusion for All Employers——Carefully review and respond to any IRS “employer penalty notice” you receive, since IF you ignore them and do not respond to them within 30 days, the proposed assessment in the IRS notice will be converted into an actual assessment to the employer.
 We expect that many, perhaps the majority, of these IRS notices will contain correctable errors which require detailed responses within 30 days of receipt of the notices.

WHAT WILL THE IRS NOTICES LOOK LIKE—-HOW TO RESPOND
The IRS has released an example of their “226j” letter, which is their proposed assessment to employers who they believe may owe an employer penalty for not offering ACA compliant insurance to their employees/dependents. Our understanding is that the 226j notices will include a “packet” of other forms, to include a Form 14765 which lists which employees received, correctly or incorrectly, premium tax credit and/or cost sharing reductions from the ACA marketplace, calculations by month of proposed assessments of employer penalties, response forms for employers to send back to the IRS with details to rebut the IRS calculations, so forth and so on. Employers will have 30 days in which to respond to the IRS to their 226j proposed assessments, and then the IRS will send out a “227 letter” as their response to the employer’s response. An employer can also request a “pre-assessment conference” with the IRS if they dispute the findings of the IRS in the 227 letters. It is not known how long the IRS will take to send out their responding 227 letters or how long the pre-assessment conference scheduled meetings will take——-due to the utter confusion and potential massive mistakes on this “first time ever” process, long delays should be expected from the employer’s response until any final assessment is agreed to by the employer and the IRS.HOWEVER, the employer will know, based on ACA law, where they “stand” once they have reviewed the 226j original notice and compared it to their own records and ACA law as to employer penalties———–EMPLOYERS MUST CAREFULLY REVIEW AND RESPOND TO THE IRS 226j NOTICES. Compare the IRS calculations and employees listed who received subsidies with your own 1095/1094 ACA reports for year 2015——–Advice may be needed from your benefits consultant, your ACA reporting firm, your lawyer and your CPA.

TYPES OF ACA EMPLOYER PENALTIES—WHAT THE IRS IS LOOKING FOR
The only employers who are subject to potential ACA penalties are so called “applicable large employers” (ALE’s).An ALE is an employer who employs a monthly average of 50 or more “full-time equivalent” employees, for the entire calendar year. Every employee who is hired to work at least 30 hours per week is automatically a “full-time employee”, and employees who work less than 30 hours per week have their hours worked “converted” into FTE’s—–Example——10 employees who work 15 hours each for a month total 600 hours of worked time for the month, which when divided by 120 (equivalent to a full-time employee who works 4 weeks at 30 hours per week), converts into 5 FTE’s. Adding an employers” full-time (30+ hours per week) number of employees to their converted part-time hour “equivalents” equals their FTE’s for the month. An employer could be an ALE, subject to ACA requirements as to insurance and reporting, even if they have zero full-time employees. An employer whose workforce is comprised of 100 employees, all of whom average 15 hours of work per week is an ALE with 50 FTE’s. SO “part-time hours” count to determine IF an employer is a “large employer/ALE”

An “applicable large employer”/ALE are the only employers who must abide by ACA requirements for insurance offers and ACA forms reporting
——employers with less than 50 FTE’s, on average per month, are not subject to the Affordable Care Act (although, those smaller employers do need to report insurance coverages/enrollments to the IRS on “B” forms——-not “C” forms which are only required of larger employers). The responsibilities of an ALE/large employer are to “offer” “minimum essential coverage” to all “full-time” employees (part-timers/below 30 hours are not required to have insurance offers) and their dependents (except spouses), in a manner in which the offered insurance meets an ACA quality standard called “minimum value” (MV) and also is “affordable” to the employee for employee only coverage. The ACA has 2 tiers of employer penalties for non-compliance——-1. IF the employer offered “MEC” coverage to at least 95% (70% in 2015) of their “full-time employees” and dependents, they cannot be penalized with the Section 4980H(a) penalty. The “A” penalty can be assessed on all an employer’s full-time employees IF only one employee obtains subsidized coverage from the ACA marketplace/exchange. The penalty was originally $2,000 per full-time employee of the employer, less the “first 30 FT employees free” (first 80 free for 2015 only). All penalty amounts are increased each year for inflation. The “A” penalty, also known as the “sledgehammer penalty”, can be huge for employers who have many full-time employees and do not offer at least “minimum essential coverage” to their full-time employees. Some employers, with the objective of avoiding the “A” penalty, have offered so called “MEC” insurance plans to full-time employees, which do avoid the “A” penalty.However, if the MEC insurance offers do not meet higher quality standards of “minimum value” (MV) and/or are not “affordable” (as a general rule, an offer of insurance is not affordable if it costs the employee more than 9 1/2% of their wages reported in box 1 of their W-2 form (generally, gross wages less any pre-tax benefit plans). The “B” penalty would only apply specific to an employee who was offered MEC coverage which did not meet MV standards and/or was offered as “unaffordable”, and the employee went to the exchange and obtained a subsidized insurance policy, or cost savings reductions. The “B” penalty originally was $3,000 per employee BUT only applied to an employee who obtained a cost subsidy on the exchange/marketplace. The “B” penalty does not apply to all the employer’s full-time employees.

Please note that the employer penalties can only be assessed to “large employers” and only apply to “full-time employees”——no ACA requirement exists to offer insurance to employees who work below 30 hours per week.

REASONS WHY THE IRS CAN PROPOSE PENALTIES
A “large employer” could be subject to ACA employer penalties in the following cases (and, again, only pertaining to full-time/30+ hour per week employees):
  1. A large employer chooses to not offer any medical insurance to it’s full-time employees. This could trigger the “A” penalty, calculated as the number of FT employees less “30 free”, X $2,000——–70 FT employees less 30= 40 X $2,000 in penalty (for 2015 only, an employer can reduce their full-time employee count by 80, not the 2016 forward “30 free”;
  2.  The employer offered medical insurance coverage to its’ full-time employees and their dependents, but the coverage did not meet “minimum value” as to quality of coverage OR was not “affordable” to the employee (generally, the employee’s cost is greater than 9 1/2% of household income, with a safe harbor for the employer of 9 1/2% of W-2 wages.This fact pattern could generate an IRS penalty of $3,000 for every employee who went to the exchange/marketplace and obtained subsidized insurance coverage since they were not offered “minimum value” coverage which was “affordable”——–Unlike the A penalty, the B penalty only applies to those specific individuals who obtained subsidies from the marketplace;
  3.  We suspect that a common reason for an IRS 226j notice proposed assessments will be mistakes, bad data, etc——–CAREFULLY REVIEW THE NOTICE DETAILS AND ASK EXPERTS IN ACA TO HELP WITH YOUR 30 DAY RESPONSE!!

WHAT IS THE ACA CONCEPT OF EMPLOYER RESPONSIBILITY AND PENALTIES?
The primary objective of the Affordable Care Act, as signed into law in March of 2010, is to make sure that all Americans can access healthcare, regardless of financial condition, pre-existing conditions, etc. The ACA has identified that we “all” share the responsibility to provide medical care to all people, and that the financial burden of providing medical care to all falls on 3 specific “groups”——each individual is required to have “minimum essential coverage” or pay an individual penalty if they forego insurance; employers, who much of our population rely on for medical insurance, share the responsibility to either offer health insurance or pay a “penalty;” and the federal and state governments also share the responsibility for medical care via Medicare, Medicaid, or providing discounted medical insurance and/or additional medical cost sharing reductions, to individuals who fall below certain income thresholds. Higher income individuals also have increased taxes which are specifically targeted to help finance the ACA’s system of premium tax credits and medical cost sharing reductions provided to lower income individuals
The employer can satisfy their “shared responsibility” to provide medical benefits to all of us in one of 2 ways——-either offering medical insurance/medical benefits to their “full-time employees and their dependents”, OR paying a penalty for not offering insurance of a specific standard and which is affordable to it’s employees. Many ACA authors have referred to this employer decision as the “Pay or Play” option——Play the ACA system by offering insurance OR Pay a penalty to help finance medical care for it’s employees.

The Affordable Care Act exempts employers from any “shared responsibility” IF they employ less than 50 “full-time equivalents employees”.
 Since FTE’s include part-time equivalent hours in addition to standard full-time employees, it is very easy for a smaller business, which employs many part-timers, to calculate as a “large employer” for ACA purposes. The ACA’s intent is to exclude smaller organizations from the financial and reporting burdens of the ACA.

CAN AN EMPLOYER AVOID LARGE EMPLOYER STATUS BY SETTING UP SEPARATE LEGAL COMPANIES
The “short answer” is “no”. Separate corporations, LLC’s or other legal entities are “counted” as a single employer to determine “large employer status” IF they are owned 80% or greater by the same individual owners. We are aware of some business groups (restaurants come to mind) in which locations with a similar franchise or brand are owned 21% by “investors” who are not owners in other locations——this ownership strategy can be used to keep certain businesses separate for ACA employee counting purposes. If a restaurant/other group has a “common management company” for all locations, Section 414 of the tax code would generally combine all locations being managed by the management company as a “single employer” for ACA purposes—-potentially exposing some entities to ACA requirements who otherwise may not meet the 80% “common ownership” ACA test. Obviously, “controlled group” determinations can be quite complex and legal counsel should be contacted for advice.

WHAT ABOUT THE SCARY NON-COMPLIANCE PENALTIES FOR NOT REPORTING INFORMATION BY LARGER EMPLOYERS?
The Affordable Care Act provides for various penalties if “applicable large employers” do not submit reports to full-time employees (1095-C reports) and to the IRS on a Form 1094-C. The stipulated penalties for non-compliance can be staggering as to amounts. For years 2015 and 2016, the IRS has indicated they will not assess any of the reporting penalties to employers who make a “good faith effort” to comply with ACA reporting. A “good faith effort” generally means forms are submitted, but perhaps not correctly coded and prepared.The same penalty exemption for “good faith effort” supposedly does not apply to employers who did not file any of the “C”, large employer forms. We are familiar with organizations who do not believe they are required to submit ACA reports since their full-time employee count is below 50——-but with the addition of part-time hourly equivalents, are within the definition of ALE’s. It is totally uncertain what the IRS will do with those ALE’s who did not file the 1094/1095 reports.

WHICH EMPLOYEES GET THE ACA 1095-C IRS FORMS ANNUALLY?
A “large employer” is required to provide their “full-time employees” (not part-timers) with annual Form 1095-C forms, for any employee who was a full-time employee for any month during the year. The 1095-C forms include “indicator codes” on lines 14-16 of the forms, which indicate if the employee was full-time or part-time for every month during the year, whether they were offered insurance coverage which provided MEC and also whether the coverage met “minimum value” standards and was affordable to the employee, codes for non-assessment of penalties such as the first 90 day “waiting period” to enroll in insurance offered by the employer and also the “measurement periods” for variable hour employees (which generally are 52 weeks), so forth and so on.
A “full-time employee” is a person who is hired to work a job which requires at least 30 hours of work to fulfill it (those are “designated” full-time employees) AND also a part-time/variable hour/seasonal hour employee who is not hired to work a steady 30+ hour work week BUT who over a 52 week period of time, when “looked back” at hours, actually did work at least 30 hours per week on average during the 52 week period. Those part-time/variable hour employees who do in fact work at least 1,560 hours over a 52 week period (52 weeks X 30 hours= 1,560 hours) are classified as a “full-time employee” immediately after they have met the 52 week “lookback” measurement period. During their 52 week measurement/testing period, they are not full-time employees and are instead coded as exempt from penalties since they are in their “initial or subsequent standard measurement period”——–So no insurance offers are required for variable hour or seasonal employees until they have worked at least 1,560 hours over the employer’s measurement period (NOTE—an employer can use a lesser measurement period, but 52 weeks is generally considered “best practices” for the employer to adopt)

TRACKING YOUR EMPLOYEE HOURS FOR ACA REPORTING
Here are the vitally important records which an employer must keep to properly track, manage and report their ACA profiles and annual reports:
  1. When you hire a new employee—-did you hire them to work at least 30 hours per week?—-If so, enter them as “full-time” in your payroll/ACA system—-IF they are hired to work less than 30 hours per week, OR they are hired to work varying hours or to work seasonally, enter them as “part-time” in your system AND then track their hours worked/paidto determine if they later become a “full-time employee”;
  2. Make sure that you enter hire dates and termination dates into your payroll/ACA system——these are needed since the ACA penalties and exposure is technically calculated on a monthly basis during the year;
  3. If you choose to offer insurance, make sure your system alerts you to enroll new employees within 90 days of hire.Also, make sure you track your part-timer hours to determine IF they are trending towards a 52-week average of 30 hours plus, which converts them to full-time status—–and qualifies them for insurance offered to full-time employees.


IN CONCLUSION

The Affordable Care Act is very complex, defines “full-time” as working 30 hours or more per week, and imposes penalties on “large employers” (many of whom are not large as compared to corporate America) who either do not offer ACA compliant insurance and/or does not submit detailed annual ACA reports to full-time employees and the IRS. The potential penalties for non-compliance and the Section 4980H “A” and “B” penalties could be so large that some ACA authors have pondered what the federal government will do if their assessment of ACA penalties is so substantial as to put the employer out of business—–resulting in lost jobs!! THE PRIMARY CONCLUSION IS TO SEEK PROFESSIONAL ADVICE AS TO YOUR STATUS PER THE ACA, AND DEVELOP STRATEGIES TO MINIMIZE THE FINANCIAL IMPACT AND ALSO TO TRACK AND REPORT TO EMPLOYEES AND THE IRS.
AccuPay is here to provide our “large employer” clients with annual reporting and also to help our clients understand the ACA law as it applies to each employer’s unique fact pattern. We generally help our clients with ACA concepts/designs in combination with the employer’s other advisors, to include legal consul, benefits consultants/insurance brokers, and CPA’s. Questions about ACA should be emailed to “aca@accupay.com” or call your processor for help/transfer to one of AccuPay’s ACA consultants.


PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques.  You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.

Facebooktwittergoogle_pluslinkedinmailby feather

Personal Use of Company Car

October 24th, 2017
AccuPay has assisted our clients for many years with calculating and reporting “personal use of a company vehicle” taxable compensation to employees. We believe that employers should calculate and report compensation for personal use of employer-provided vehicles for the following 2 reasons:

 

    1. Tax law is very clear that the personal use of an employer vehicle by an employee is taxable compensation to the employee; and
    2. CPA firms acknowledge that IRS business/organization tax audits pay particular attention to vehicle expenses and the business/personal use of the vehicles. Employers who take the time to calculate and report personal use of company vehicles as compensation on employee W-2’s are less likely to be heavily reviewed/scrutinized as to their vehicle expense deductions in precise detail (this is not law, but is “real world” experience!)

 

Auto Use Forms on our Website  

AccuPay’s newly updated “personal use of company car” annual forms for 2017 are on our website at www.accupay.com. Simply click on Resources then Forms and you will find our link 2017 Personal Use of Auto Letter.

Important

AccuPay clients should complete an auto form for every employee who personally used an employer-provided vehicle during the one year reporting period November 1, 2016 – October 31, 2017. These completed forms should be submitted to AccuPay no later than November 30, 2017, which gives us time needed to calculate tax withholdings, tax deposits and to report the correct compensation amounts on employee W-2 forms for 2017.

Have Questions?

Call one of AccuPay’s many CPP/CPA service teams at 317-885-7600.

 

Facebooktwittergoogle_pluslinkedinmailby feather

Supersize with Roths

October 18th, 2017

If your employer’s 401(k) or 403(b) plan permits employees to contribute “after-tax” to a “Roth” account, you should seriously consider contributing part or all of your “elective deferrals” to your Roth account.  Here’s why:

  •  Your Roth contributions and all earnings accumulated in your Roth account grow 100% tax-free to you.  Earnings on your “regular” 401(k) pre-tax funding will be taxed to you at whatever tax bracket you are in when you draw out 401(k) funds.  So the Roth investment earnings compound tax-free whereas the regular 401(k) earnings are deferred from income tax  until you take 401(k) plan distributions;
  • If you contribute to your 401(k) or 403(b) plan on a pre-tax basis, are you going to save and invest your annual tax savings for retirement, or instead spend it each and every year?  If you contribute $5,000 pre-tax to your employer’s 401(k) plan, and you are in the 15% Federal tax bracket, will you save and invest the $750 in annual tax savings?  Most people will spend their tax savings every year, and later be taxed on their regular 401(k) plan distributions.  A Roth 401(k) provides discipline needed to accumulate tax-free funds for your retirement; and
  •  Distributions from a regular 401(k) plan often dramatically increase the taxes on retirees’ social security benefits – not so with Roth distributions.

 

WHO IS THE BEST MATCH FOR A ROTH?

  • A person in the 15% or lower bracket (the majority of US taxpayers) does not save substantial taxes each year from pre-tax funding of regular 401(k) accounts.  Funding a Roth 401(k) is almost always the best choice for taxpayers in lower tax brackets;
  • Pastors/ministers who have “opted out” of the social security system are often excellent Roth candidates;
  •  Younger employees with 20-30 years until retirement are also excellent candidates for the compounding of totally tax-free earnings in a Roth; and
  • Employees who envision they will fund their personal retirement years based on income from social security and their 401(k) plan distributions are excellent Roth candidates.  As previously stated, Roth distributions do not create taxes on social security benefits, as regular 401(k) and IRA distributions do.  The receipt of non-taxable Roth distributions plus non-taxable social security benefits may enable a person to retire with a reasonable tax-free cash flow.

 

EMPLOYER PLAN ADMINISTRATION

Every employer can include a Roth provision in their 401(k) or 403(b) plan document (not available for SIMPLE-IRA plans).  However, the Roth provision require separate plan accounting for the Roth funds and the regular pre-tax plan contributions.  Employer “matches” can not be added to the Roth funds.  Separate accounting for regular and Roth contributions, as well as allocating investment earnings on these separate accounts, adds to the complexity and the cost of plan administration.

 

IN CONCLUSION

We are big fans of Roth funding for the majority of taxpayers.  Consistent and regular payroll-deduction funding of a Roth investment will accumulate to a sizeable account balance after several years.  Your tax-free Roth 401(k)/403(b) distributions coupled with minimally taxed social security benefits can provide millions of Americans with a comfortable cash flow in retirement years.

AccuPay can recommend local retirement plan consultants/administrators who can assist employers with Roth provisions in 401(k) and 403(b) plans.  Call AccuPay at 885-7600 for local experts we recommend to clients.

 

PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques.  You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.

Facebooktwittergoogle_pluslinkedinmailby feather

Box 14, W-2 Employee Tax Form Information

May 24th, 2017
Entering helpful information in Box 14 of your employees’ annual W-2 forms can assist them in their annual personal tax preparation – and limit the number of questions employees ask you about their W-2 forms.  Box 14 of Form W-2 is for “information only” and is not required information, nor does it “balance” or reconcile to any other payroll tax forms or calculations.
Savvy employers can use Box 14 to report any financial information to employees they wish to communicate.
Here are examples of common “Box 14″ employee disclosures: 
  • “S” Corporation health insurance premiums paid by the employer for 2%+ shareholder employees.  This will help small business owners claim a “self-employed health insurance deduction” on their Form 1040.  (See our “S” Corp Insurance PayDay)
  • After-tax employee contributions to an HSA can be reported in Box 14 with the same amount deducted on the employee’s Form 1040.  (See our HSA PayDay)
  • Pastors and tax preparers find it useful if a pastor’s housing allowance amount is entered in Box 14.  (See our Tax Tips for Pastors PayDay)
  • Contributions made by employee payroll deduction to the Indiana College Choice 529 program are ideal for entry in Box 14.  In this manner, the employee and/or tax preparer is more likely to claim the Indiana income tax credit for this college funding vehicle.  (See our College Savings PayDay)
  • The annual calculation of “personal use of a company car” is frequently entered in Box 14.  This taxable income shows the IRS that the employee is following the tax law in this “hot” tax audit area.
  • An employee’s donations to a charity via payroll deduction can be entered in Box 14 as to the amounts and names of charities.  In this matter, the personal tax deduction for charitable giving is not likely to be overlooked.
  • Other Box 14 “tax-help” possibilities include payroll deductions for professional dues, job uniforms, work supplies, after-tax health insurance premiums, etc.


How Does AccuPay Enter Box 14 Information for Our Clients?

If Box 14 is reporting an annual calculation of an expense paid via employee payroll deduction, such as after-tax HSA employee funding, we can insert an “accumulator code” and name that will automatically tally the amount and enter it in Box 14 with a “code”.

If Box 14 is used to report information which is not calculated from payroll deductions, such as personal use of company car, we will need information from the employer which we can manually report in Box 14.

Box 14 – Use Your Creativity!

Make a list of the types of information your employees typically ask about when they obtain their annual W-2 forms.  Much of the tax information can be reported in Box 14 and help your employees compile tax information for their annual 1040 forms. Our website has a Resources > Forms page which includes a researched memo we wrote called “How to Read Your W-2.”  We recommend you give a copy of this to your employees with each year’s W-2 forms.
 
If you wish to talk with us about adding payroll deduction “accumulators” for annual W-2 reporting, call your processor at 317-885-7600.
PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques.  You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.
Facebooktwittergoogle_pluslinkedinmailby feather

ACA Reporting by Employers—-how much longer?

May 16th, 2017

All employers with 50 or more “full-time equivalent employees” (so called FTE’s), which is a combination of employees who work 30 or more hours per week plus all part-timer hours converted into 30 hour work-weeks, have been required to maintain meticulous records of employee hours, benefits offered, employee costs for the insurance offers, etc——–Employers with 50 or more FTE’s are deemed “applicable large employers” and must report hours, benefits, costs, etc on annual 1095-C forms to all full-time employees as well as a “summary” 1094-C form to the IRS——all of which is complex, time consuming and costly.

The recently passed House bill, the American Health Care Act (AHCA) is expected to face significant scrutiny in the Senate, to include possible “start from scratch” revisions to the House passed bill. Some experts have commented that the process of ACA “repeal and replace” will take a long time, with some thinking nothing will be passed until after the  the next Election cycle, Nov of 2018

I just listened to a webinar yesterday presented by an attorney who is an expert in healthcare reform  specializing in ACA/ benefits (she also has degrees from Harvard undergrad and Harvard Law). She indicated that the current AHCA, even if it passed the Senate “as is” (very unlikely), provides for “exchange subsidies” through year 2019, which thereafter converts to “tax credits”. Since the subsidies are based on information provided by employers in the 1095-C forms, EVEN IF the AHCA were enacted this year, employer reporting would still be required to determine whether individuals are entitled to subsidies——which last through year 2019 based on the recently passed House bill

Conclusion———Employers should continue to track employee data and plan on accurate annual reporting of 1095-C and 1094-C forms, just as they have done for the past 2 years. Make sure you have systems in place which correctly track employee hours and benefits offers and costs

 

 

 

 

 

 

 

 

Facebooktwittergoogle_pluslinkedinmailby feather

SMALL EMPLOYER HRA BASICS

May 5th, 2017

Effective January 1, 2017, small employers (less than 50 employees) can offer employees reimbursement of medical expenses to include personal health insurance premiums on a tax-free basis.  These new programs are called “qualified small employer health reimbursement arrangements”, or “QSEHRA’s” for short.

Many smaller employers had previously reimbursed employees for personal health insurance premiums on a tax-free basis until the Affordable Care Act/Obamacare required that tax-free HRA accounts be “paired” with employee group insurance offered by the employer.  Most employers who had been reimbursing employees for their personal health insurance premiums were not also offering group insurance.  Tax-free reimbursement of health insurance premiums had been used by employers for over 50 years based on IRS Revenue Ruling 61-146.  This long-used benefit strategy was essentially “killed” January 1, 2014 by various provisions of the ACA.

QSEHRA – NOT YOUR DADDY’S HRA!

Congress passed legislation late 2016 which created “Qualified Small Employer HRA’s”, effective in 2017.  Employers eligible for the new QSEHRA program need to meet the following conditions:

  • The employer must employ less than 50 employees;
  • The employer must not be offering an employee group insurance plan;
  • The employer must offer the HRA reimbursements on “similar terms/similar reimbursement amounts” to all full-time (30+ hours per week) employees who have been with the employer for at least 90 days and are at least age 25;
  • The employer must provide “notices” to employees about the QSEHRA benefits and also report the annual reimbursement amounts on the employee W-2 forms (as non-taxable HRA benefits).
UNLIKE THE FORMER TAX-FREE PERSONAL INSURANCE PREMIUM REIMBURSEMENTS BEFORE THE ACA, the brand new QSEHRA’s have a few significant disadvantages as follows:
  • An employer must offer the reimbursements to virtually all full-time employees “on the same terms” — Gone are the days of negotiating customized tax-free insurance reimbursements with specific employees.  A very defined “non-discriminatory” theme permeates the new 2017 version of health reimbursement arrangements.  All for one, one for all (which could “beg the question”, why not traditional group insurance instead of QSEHRA’s?);
  • Employees who are purchasing personal health insurance from the “marketplaces/exchanges” must reduce their subsidies/premium tax credit amounts by the amounts of the offered QSEHRA program.  An employer considering a QSEHRA program needs to survey their employees to determine which employees would lose federal tax credit subsidy amounts based on their offered QSEHRA amounts.  This program is generally not advisable for an employer who has several employees who qualify for insurance premium subsidy on the ACA exchanges; and
  • The old Revenue Ruling 61-146 tax-free insurance reimbursements involved minimal “red tape.”  The new QSEHRA program involves notices from employers to employees, reporting of HRA benefits on employee W-2s (a new “Box 12″ code will likely be used), notices from employees to the ACA marketplace if they are receiving subsidies, and accounting for employee reimbursement amounts as compared to the maximum legal annual amounts ($4,950 for employees only and $10,000 annual benefit amount for employee/family coverages.)
ADVANTAGES OF THE NEW HRA ACCOUNTS
  • All QSEHRA benefits are tax-free.  Many employers now are simply paying employees more taxable wages so they can purchase insurance and pay medical expenses “after-tax”.  The tax-free aspect of the QSEHRA benefits saves employers 7.65% in taxes and employees save 25-35% of the benefits in taxes;
  • The QSEHRA program enables employers to “fix” or “define” their costs at whatever monthly reimbursement amounts the employer chooses (but not to exceed the monthly $412.50/$833.33 tax law caps in QSEHRA benefits allowed).  Employers could view this cost certainty as an advantage over the annual pricing of group insurance plans (in essence, the risk of increasing insurance premiums is shifted from the employer to the employee);
  • Although not a group insurance plan, the QSEHRA program is a meaningful medical benefits plan which smaller employers can use for recruitment and employee retention.
A KEY CONSIDERATION
Before an employer adopts a QSEHRA program, we recommend that the plan benefits, insurance coverages/networks and costs be compared to group insurance options.  Some benefits brokers have told us that both the networks and pricing available in group insurance plans are better than options for individual insurance policies.  Options available for both personal and group insurance seem to be constantly changing as insurance companies both enter and exit various marketplaces.
IN CONCLUSION

Several smaller employers have asked us about the new HRA programs which became law this year.  In many cases, the employers have discovered that the new HRA/insurance reimbursement accounts are far less attractive than their previous, before ACA, reimbursement plans.  It is still too soon to determine how many smaller employers will adopt and use the new QSEHRA programs.

As an employer considers whether to adopt a QSEHRA plan for 2017, they should also carefully review coverage, cost and “network” options available with group insurance plans.

If you would like more information about the brand new QSEHRA plans, we have some very detailed “Q & A” information that can be emailed to you upon request.  If you actually adopt a QSEHRA, please let us know so that we can gather the benefit information needed for 2017 employee W-2 forms.

Facebooktwittergoogle_pluslinkedinmailby feather

House Repeals Obamacare—What about Senate?

May 4th, 2017

Today the House of Representatives cobbled together enough votes to “repeal and replace” the Affordable Care Act, better known as Obamacare. This legislation will now go to the US Senate, where experts anticipate major challenges exist as the Senate debates modifications to the House passed bill. The Senate will likely make major changes to the newly proposed American Health Care Act, now becoming referred to  as TrumpCare. Once the Senate generates their own version of “health care reform”, the House and Senate will then work on a compromise bill before it is presented to the President for signature—if the Senate even creates their version of a health care reform bill.

Employers need to continue complying with the ACA/Obamacare as it exists today, all the time with their “ear to the tracks” as to changes to the current law. AccuPay will continue to monitor this legislation and keep our clients informed as to the proposed law’s status and action steps to consider.

 

 

 

 

Facebooktwittergoogle_pluslinkedinmailby feather

New Overtime Rules on Hold

November 29th, 2016
On November 22, a federal judge in Texas granted a preliminary injunction blocking the December 1, 2016 implementation of the Department of Labor’s new overtime rules. These rules, as discussed in previous PayDay newsletters, would increase the minimum salary for exempt employees from $455 to $913 per week.
The injunction was the result of a complaint filed on September 19 by a coalition of 21 states, later joined by business organizations led by the US Chamber of Commerce. The complaint claims that the Department of Labor overstepped its authority in the drafting of the final overtime rule changes, specifically in regard to the increased exempt salary limits and automatic increases going forward. Upon initial review, the court determined the complaint had merit, citing evidence that the new rules were in violation of Congress’s original intent – which was to use an employee’s “actual duties,” rather than salary, to determine exemption from overtime pay. The court granted the states’ motion for a nationwide, temporary injunction. In the meantime, the court will continue to review the case until a final determination can be made.
What Now?
At this point, it is unknown whether the rules originally set to go into effect on December 1 will be implemented at a later date, will be implemented in part, or will be determined unlawful.
For employers who have already increased employee wages based on the proposed exempt limit, it is recommended by organizations such as SHRM that these changes be kept in place. Taking back raises, unless the expense jeopardizes a business’s viability, may have more negative impact than spending extra money on salaries. Employers who have already paid employees at a higher rate cannot take this money back. If deciding to reduce wages going forward, employers should pay attention to state laws that require advance notice of wage reduction. (Indiana does not have such a law.)
Employers who have not yet implemented changes to comply with the new overtime laws would be wise to postpone these decisions until the final ruling is made.
As of today, the future of the DOL’s new overtime rules is still unknown. While employers can now legally postpone any sweeping internal changes, they should not assume that the overtime rules have been permanently barred. Employers would be wise to have a plan in place if and when it becomes necessary.
AccuPay’s HR Support Center has added the video, “What the Overtime Injunction Means for You” which we are making available to you here.  Our HR experts are also available to help you strategize for handling overtime or any other HR issues. For more information about the HR Support Center or HR consulting through AccuPay HR, call Betsy or Laura at 317-885-7600.
 
PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques.  You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.
Facebooktwittergoogle_pluslinkedinmailby feather
Social Media Auto Publish Powered By : XYZScripts.com