The following are questions and answers generated by our December 2011 Payroll Update Events.
FRINGE BENEFITS
Q - Wellness Programs - taxability? Our company recently paid directly to weight watchers $50 per employee who signed up to participate in the at-work Weight Watchers® program. Employees paid a reduced rate to Weight Watchers.
A - There are no definitive code sections regarding Wellness Programs. A conservative approach would be to tax this benefit. Please note that Publication 15-B indicates that all benefits not specifically mentioned are considered taxable.
Q - Regarding the rewards fees on credit cards which allow the cardholder an advanced level of reward points, is the additional fee or the rewards used by the cardholder taxable fringe?
A - If an employee uses a company card for business expenses and redeems the points earned for gift certifcates, which would be a taxable benefit to the employee.
Q - Prizes that are given out at our company picnic/holiday party. Are they taxable for the employee? (Some are cash, gift cards, etc.)
A - Cash or gift cards given out during a company picnic or holiday party are always taxable to the employee. However, certain small gifts (called de minimis gifts) would not taxable to the employee. De minimis fringe benefits include property or services provided and have a value less than $35 (as a good rule of thumb).
Q - Is a company credit card for bonus points - working condition fringe - taxable vs. exempt?
A - The benefit would be taxable to the employee unless turned back in to the employer.
Q - If country club dues are purchased for the CEO and COO of a corporation, do they need to be entered on their personal W2 as a taxable fringe benefit?
A - Yes, country club dues are always taxable to employee
Q - How do we handle taxability of drawings for employees for participation in certain events?
A - It would depend upon what is awarded in the employee drawings. If gift cards or cash is given, those amounts would always be taxable to the employee. Certain small gifts (called de minimis gifts) would not taxable to the employee. De minimis fringe benefits include property or services provided and have a value less than $35 (as a good rule of thumb). For additional information, please see Publication 15-B on the IRS website.
Q - Are gift cards that are not purchased by employer but are obtained as a result of credit card points taxable to employee?
A - If an employee uses a company card for business expenses and redeems the points earned for gift certificates, that would be a taxable benefit to the employee.
Q - Are personal EZ pass charges taxable to people who are given company vehicles? If so, is it included under auto or as a separate taxable fringe benefit?
A - Personal EZ pass charges are taxable to the employee. There is no specific box code for this type of reimbursements, but you would include it with auto expenses in Box 14.
Q - If country club dues are purchased for the CEO and COO of a corporation, do they need to be entered on their personal W2 as a taxable fringe benefit?
A - Yes, country club dues are always taxable to employee.
Q - In addition to cell phones, what about tablets? Are they tax deductible?
A - No, tablets are not included with cell phones. Employer-provided tablets can be considered a working condition fringe benefit if the following conditions are met:
1. Use of property must be related to employer's trade/business.
2. Employee would have taken a business expense deduction on personal tax return if purchased themselves.
3. Business use must be substantiated by business records. Assuming all the following conditions are met, the personal use of the tablet would be taxable to the employee and the business use would be non-taxable.
Q - Are country club membership dues paid directly to the employee to use for business development, taxable to employee?
A - The country club membership dues paid directly to an employee would be taxable to the employee.
Q - If an employee opened a credit card on behalf of the company, who receives cash back rewards? Is the employee required to turn over to the employer cash rewards, frequent flyer miles, etc?
A - The benefit would be taxable to the employee unless given to the employer.
HEALTH INSURANCE
Q - Regarding the health insurance cost on the W-2 form: if under 250 employees, it is not required for 2012, but what about time periods after that such as 2013 and 2014?A - The IRS has not issued guidance on when employers subject to transitional relief (less than 250 employees) would be required to report the health insurance cost. The best guess would be starting in 2013, but please check your Stambaugh Ness eNewletters for any breaking information.
Q - In addition to employer paid health insurance, we have a "wellness benefit" with up to $500 of medical expenses not paid by the health insurance (receipts are submitted). Does this amount go on the W-2 Box 12 along with the health insurance dollar amount?
A - No, this amount should not be included in Box 12.
Q - How will the employer paid health insurance go onto the EE W-2? We have QuickBooks and I haven't seen this anywhere on there.
A - Code "DD" in Box 12 is used to report both employee and employer paid healthcare premiums under the Health Care Reform Act (Patient Protection and Affordable Care Act). Please note that for all employers, reporting is option in 2011, but for some employers, it will be mandatory in 2012.
Q - Aren't non-taxable health care costs required to be under a Cafeteria Plan?
A - Employee contributions would need to be under a 125 plan to be non-taxable. The employer's contribution is non-taxable as long as it is paid under an accountable plan.
Q - On slide 53 (of the payroll presentation), is there a web site or government publication that I can find out more information about what they mean when they say "60 days advance notice of any material changes to the plan?"
A - This is a regulation established to the health provider not the employer.
RESIDENCY
Q - If a PA employer has NJ or MD employees and is not registered with those states, are they required to withhold PA state taxes or is it the employee's responsibility to pay that?
A - Assuming PA Form REV-19 EX has not been completed by your MD or NJ employees, you as an employer are required to withhold PA Income Taxes on their wages. If your MD or NJ employees want their resident state's income taxes withheld, they will have to complete PA Form REV-19 EX and you will have to register with each of those states.
Q - For the military spouse residency, is the spouse required to pay the resident state tax, if he or she lives out of state?
A - Correct. It is the individual's responsibility to pay the state income taxes under the military spouse residency act. For PA based employers, please have your employees fill out PA Form REV-19 EX to document the non-withholding of PA income taxes.
Q - If an employee moves out of state but continues to work for us (travels to various job sites throughout the country), how do I know what taxes to withhold? Should I withhold from the state he or she lives in or the state we are based in?
A - Generally, the employer is required to withhold state income taxes based on the employer's location. One exception to this rule involves reciprocal agreements. Receiprocal agreements are applicable when the employer's state and the employee's resident state are different.
Pennsylvania has receiprocal agreements with Indiana, Maryland, Ohio, Virginia, West Virginia, and New Jersey. If the employee is a resident of one of the reciprocal states, he or she has the option to have the employer withhold the employee's resident state's income taxes. To document this consideration, please ask your employee fill out PA Form REV-419 EX.
REFERENCE THESE QUESTIONS TO PUBLICATION 15-B
Q - Can you please support your answer about NOT taxing vendor awards provided by the vendor to our employees (only available to EEs) at a health Verde fair?
Q -
For salesmen who take customers to lunch or golfing, is that taxable to the salesman?
Q -
Where can I find out more information of the following:
1) Life Insurance deductible. I was told the corp could only deduct the premium up to $50,000/employee. You implied otherwise
2) Long Term Care - what can a corporation deduct as far as premiums?
3) Service awards - $600 limit
4) Deduction of business lunches and entertainment
Q - My salesperson does not report to an office location so they drive straight from their house to the customer's site. Is that drive from home to the first customer location personal or business miles? How about the last customer of the day to home?
Q - Employee reimbursements - If an employee moves from another country and stayed with another employee until getting apartment, will the moving truck, etc. months after the move be taxable or non-taxable?
Q - If a health club (gym) for employees in an established wellness program, is this taxable?
A - In reply to all of these questions, please see Publication 15-B that discussed taxabiliy of awards in full
FLEXIBLE SPENDING ACCOUNTS - PLEASE REFER TO IRS PUBLICATION 929
Q - I know the 2013 IRS limit on Flexible Spending Accounts is $2,500. Were there any new limitations for 2012? Dependent care or medical?
Q - If an employee has a child under age 26 covered under their health insurance, may they use some of their medical expenses toward their 2012 FSA allowance? (assuming this child is not a dependent).
A - In reply to all of these questions, please see Publication 929 .
MISCELLANEOUS TOPICS
Q - Define "Accountable Plan." Must it be a written plan? Can a fringe benefit in an accountable plan be provided to just a certain class of employees?A - For a though definition of an Accountable Plan, please see our Online Payroll Guide. Page 188 contains the necessary criteria for an Accountable Plan.
Q - Are scholarships required to receive 1099's?
A - No, scholarships are specially excluded from 1099 reporting.
Q - If you pay a higher fee for one employee's cell phone plan, is this higher fee taxable to the employee? Is the difference taxable or the entire fee?
A - No, the different fees do not affect the taxability of the cell phone. As long as the type of plan is reasonably related to the needs of the employer's business and is used primarily for business, the personal use is non-taxable.
Q - Were cell phone changes retro to 2010? We just did W-2 C's for all of our executive for 2010. A - Yes, per guidance issued - this was retroactive to 2010
Q - We have 3 truck drivers, and 2 drive from our satellite plant to corporate, about 30 miles one way. The other driver, drives out-of-state, The 2 drivers have company provided cell phones. We pay the personal cell phone bill for the out-of-state driver. Should we be doing that, and should it be taxed?
A - As long as it is for business purposes and personal calls are deminimus - this woud be non-taxable to the employee.
Q - Is E-Verify the same as when I verify Social Security numbers in the SS under Business Services online? I thought they were the same thing, so do I have to register for both?
A - They are separate verification systems. You will need to register for them separately.
Q - In the automotive industry Service Advisors have always been considered exempt from overtime. I recently heard that in April of 2011 the DOL revised its interpretation of this regulation and amended the regulation to make it clear that it would not treat Service Advisors as exempt from overtime. Can you tell me anything about this?
A - I would recommend you contact the DOL directly as we have not had any further guidance at this point.
Q - In general, what types of structures should I consider in order to minimize or defer taxable income to a key employee if I want to transfer some stock ownership to him/her? I can do the detailed research. I am just looking for bullet points pointing me in the right direction.
A - You would need to contact our office directly for further consultation on your specific situation.