Taxable and Nontaxable Compensation Section 3 Part 2

Transcription

1 Taxable and Nntaxable Cmpensatin Sectin 3 Part 2 Table f Cntents INTRODUCTION... 2 TOPICS FROM CONTENT OUTLINE... 2 KNOWLEDGE, SKILLS AND ABILITIES... 2 PART 2: OTHER FRINGE BENEFITS UNDER THE IRC... 3 OTHER PAYMENTS... 5 WITHHOLDING AND REPORTING RULES FOR EMPLOYER-PROVIDED BENEFITS... ERROR! BOOKMARK NOT DEFINED. VALIDATE YOUR PROGRESS... 13

2 3: Taxable and Nntaxable Cmpensatin Intrductin Welcme t Sectin 3 f the CPP study grup. Sectin 3 Taxable and Nntaxable Cmpensatin - cvers cntent that is at the heart f payrll and cnsequently cvers the biggest cnslidated cntent fr the CPP exam. Sectin 3 will build the fundatin fr future chapters when yu will be calculating tax withhldings and net pay. Thrughut this dcument yu ll be given highlighted cntent t supplement The Payrll Surce. While this cntent will nt cver everything yu need fr the exam, it is a gd tl t help facilitate studying. Different icns will pint ut special items Example Frm t knw Legislatin t knw Number t knw Test yur knwledge Tpics frm Cntent Outline Principles f Paycheck Calculatins Cmpensatin/Benefits Knwledge, Skills and Abilities Emplyee Benefits Regulatry Reprting Knwledge f impact f taxable benefits Knwledge f impact f nn-taxable benefits Knwledge f a qualified plan (i.e. retirement plans, sec. 125, awards, mving) Knwledge f a nn-qualified plan (i.e. retirement plans, sec. 125, awards, mving) Knwledge f imputing fringe benefits Knwledge f IRS regulatins impacting payrll Knwledge f IRS sec 129 (cmpnents f exclusin and limitatins) Knwledge f IRS sec 132 (cmpnents f exclusin frm incme) Knwledge f accuntable and nn-accuntable plans (e.g. business expense) Knwledge f federal tax requirements fr stck awards and purchases Knwledge f taxatin f wages paid t deceased emplyees Knwledge f taxatinf imputed incme (e.g. GTL, mving expense, etc.) Knwledge f allcated tips Knwledge f adptin assistance Knwledge f repayment f emplyer prvided lans Knwledge f supplemental wages Knwledge f Frm 4070 requirements Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 2 Use f material is t be used by study grup members nly

3 Knwledge f Frm 8027 requirements Knwledge f emplyee tip reprting Cmpensatin/Benefits Ability t calculate grss pay Ability t calculate grss pay fr tipped emplyees Knwledge f impact f stck awards Knwledge f impact f stck purchases Knwledge f special accunting rule Knwledge f federal standard mileage rates Knwledge f educatinal assistance incme inclusin Knwledge f educatinal assistance incme exclusin Knwledge f awards and prizes incme inclusin Knwledge f awards and prizes incme exclusin Knwledge f transit/parking/cmmuting taxatin/limits Ability t calculate emplyer paid taxes (grss-up) 3: Taxable and Nntaxable Cmpensatin Ability t calculate imputed incme (e.g. GTL, persnal use f cmpany car, mileage) Knwledge f taxable incme (e.g., fringe benefits, persnal use f cmpany car, mileage, relcatin, awards and prizes) Knwledge f nn-taxable incme (e.g., fringe benefits, persnal use f cmpany car, mileage, relcatin, awards and prizes) Ability t calculate federal taxable wages (fit, scial security, Medicare) Ability t calculate supplemental incme Ability t calculate hurs wrked (e.g. regular, vertime) Net, Dispsable, Take Hme Pay Ability t calculate net pay Ability t calculate dispsable earnings Ability t calculate take hme pay Ability t calculate ttal payrll (grss pay, vluntary/invluntary deductins, emplyer cst) Part 2: Other Fringe Benefits under the IRC Educatinal Assistance Jb related educatin Excludable if: Excludable as a wrking cnditin fringe benefit Truly jb related Nt qualifying the ee fr a prmtin Nt required t meet the jb s minimum requirements Generally graduate level nt excludable Nn Jb Related Educatin IRC Sectin 127 Excluded frm taxable wages if: Nn discriminatry N mre than $5,250.00/year Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 3 Use f material is t be used by study grup members nly

4 3: Taxable and Nntaxable Cmpensatin Prvided via an Educatinal Assistance Prgram American Taxpayer Relief Act f 2012 Permanently extended this incme exclusin Graduate level classes als excluded Business Expenses Exempt frm reprting/withhlding if: Accuntable plan Temprary Less than 1 year Substantiated Excess returned Business Travel Exempt frm reprting/withhlding if: Away frm hme r Temprary & Business need & Emplyee culd deduct as business under IRC 162 Exempt if reimbursed via an accuntable Plan Accuntable Plan Business cnnectin Substantiatin With receipts fr items >$75 Electrnic/web based plans k Excess amunts returned t emplyer All criteria must be met r plan is nt accuntable and all reimbursements are taxable Taxable if reimbursed via a nnaccuntable plan r if excess is nt returned Frequent Flyer Miles (received frm business travel) 2002 IRS nted: Will nt assert FFM as taxable incme Des nt apply t ther incentive/prmtinal prgrams cnverted t cash Or cmpensatin paid in the frm f travel Per Diem Allwance Substantiatin nt required if Emplyee recrds time, place and business purpse f expense N mre than IRS federal Per Diem amunts fr area f travel IRS Pub 1542: Per Diem Rates Business use f a persnal car Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 4 Use f material is t be used by study grup members nly

5 3: Taxable and Nntaxable Cmpensatin Can reimburse up t $0.575 cents per mile fr 2015 Must be substantiated Cash car allwance withut substantiatin is fully taxable Business Meals Generally nt taxable if Prvided during wrking hurs fr cnvenience Di Minimis (dughnuts/cffee, etc.) Occasinal Fr business reasns Other Payments Can be taxable if Reimbursed during relcatin Prvided in cash Adptin Assistance Excluded frm federal taxable wages IRC 137 up t $13, (2015) Over all years related t the adptin Nt subject t Federal incme tax withhlding even amts in excess f limit Is subject t Scial Security/Medicare/FUTA W-2 Bx 12, cde T Reprt ttal reimbursed, even amts in excess f limit Emplyee must cmplete frm 8839, Qualified Adptin Expenses & file with persnal tax return Determines taxable vs nn taxable amunts t emplyee Advances & Overpayments Taxable wages & subject t all withhlding when paid Adjust current year wages/tax withhlding if repaid in same year If repaid in subsequent year Fed taxable wages (W2c bx 1 and 2) nt reduced if repaid in subsequent year EE may file fr deductin/credit n persnal tax return W2c Scial Security & Medicare wages adjusted/tax refunded; regardless f when repaid Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 5 Use f material is t be used by study grup members nly

6 Nn-cash Achievement Awards Exempt frm tax/reprting if fr safety r length f service Length f service must be at least 5 years Tangible persnal prperty Meaningful presentatin Max f $1, under qualified plan Max f $ absent f a qualified plan Never cash r cash equiv 3: Taxable and Nntaxable Cmpensatin Back Pay Awarded as result f litigatin Generally subject t Fed/FICA & W-2 tax reprting/withhlding when paid Many curt cases & sme exceptins Punitive damages reprted n 1099, bx 3 Back pay under a statute requires separate Scial Security ntificatin fr credit t SSA wages fr year earned Bnuses/Cmmissins Fully taxable/reprtable Fed & FICA Medicare withhlding increases t 2.35% (1.45% + 0.9%) fr wages exceeding $200,000 YTD Supplemental withhlding rates apply Supplemental wages ver $1 millin Cmmissin Exceptins 39.6% withhlding rate Nncash incentives t retail sales emplyees paid slely n cmmissin and Cmmissins t life insurance sales peple W2 reprtable Bx 1, 3 & 5 Subject t FICA withhlding Nt subject t Federal incme tax withhlding Dependent Care Assistance Up t $5, excluded frm Federal FICA & FUTA Ttal Amunt valued W-2, Bx 10 Include all, even amunts ver $5000 Flex spending dependent care Back up dependent care Excess abve $5, fully taxable Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 6 Use f material is t be used by study grup members nly

7 Disaster Relief Payments 3: Taxable and Nntaxable Cmpensatin IRC Sectin 139 Victims f Terrrism Tax Relief Act Publicatin 3920, Tax Relief fr Victims f Terrrist Attacks Qualified disaster payments received are nt includable in taxable wages Qualified disaster payments are made fr: Persnal, family, living r funeral expenses Repairs fr rehabilitatin f persnal residence and cntents Grss-up Emplyer-paid taxes Grss up = Emplyer paid taxes Emplyer-paid taxes are als taxable Gen R. Ous Crp prmised Sally Jnes a $2, bnus and agreed t pay fr all withhlding taxes. Sally has YTD wages f $55, and wrks in TX where there is n state incme tax. Using the federal supplemental withhlding rate, what will be the grss amunt f her net $2, payment? Step 1 Step 2 Step 3 Prf: Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 7 Use f material is t be used by study grup members nly

8 Grss Up Cnsidering Scial Security Max 3: Taxable and Nntaxable Cmpensatin Special cnsideratins if emplyee has reached scial security base fr the year r if the amunt t be grssed up will take the emplyee abve scial security wage base If the emplyee has reached the scial security wage base, mit the scial security tax rate frm the frmula If the amunt f the grss up will take the emplyee abve the scial security wage base, mit the scial security tax rate frm the frmula; the amunt t be grssed up and the remaining scial security tax needs t be divided by the tax rate factr Bb Vagabnd s emplyer agrees t pay the taxes assciated with a $6,000 cash/nn substantiated relcatin bnus. The payment is subject t 3.5% state tax and Bb s YTD Scial Security taxable wages are $116, Hw much will be added t Bb s W-2 as federal taxable wages fr this payment? Step 1 Step 2 Step 3 Prf Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 8 Use f material is t be used by study grup members nly

9 3: Taxable and Nntaxable Cmpensatin Other Grss Up Calcs: See Surce examples beginning 3-78: Medicare When YTD wages exceed $200,000 Additinal 0.9% Federal Incme Tax When YTD supplemental wages exceed $1,000, % If 401k deferrals are t be applied Equipment Allwance Fr use f emplyee s wn tls/equipment can be exempt Allwance must be kept separate frm wages Substantiatin needed t cnnect the allwance t the wrk perfrmed Allwance cannt reduce regular wages Amunts shuld nt be standard acrss all emplyees, but related t individual use Glden Parachute Paid t an executive after a change in wnership r cntrl At least 3 times the emplyee s average wage during the mst resent five years Fully taxable Subject t withhlding Excess Parachute Prtin f Glden Parachute which exceeds 5 year average annual cmpensatin Subject t extra 20% excise tax withhlding Excise tax withheld reprted n W-2 bx 12, cde K Leave Sharing Plans Nt wages t the dnr f the leave time Taxable wages/withhlding t recipient when used/paid Value f leave surrendered t a charity as a dnatin, generally taxable t dnr, unless IRS ntes exceptins as with Hurricane Katrina Hurricane Sandy 2014 Ebla victims Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 9 Use f material is t be used by study grup members nly

10 Lans t emplyees 3: Taxable and Nntaxable Cmpensatin If lan is belw federal market interest rates and if cmbined lan balances >$10,000.00, the difference between interest charged & federal rate is reprtable n W-2 Subject t Scial Security Subject t Medicare If the lan is frgiven, it is subject t all statutry tax reprting and withhlding in year frgiven fr federal, scial security, and Medicare. Advances/Draws against Cmmissin Generally fully reprtable/taxable unless Meets qualificatins f lan and Emplyee signs agreement t repay Differential Military Pay Heres Earnings Assistance and Relief Tax Act Severance Differential wage payments All r prtin f pay t emplyee while n military duty Are supplemental wages fr FITW (W-2, Bx 1 & 2) If temp assignment wages are subject t FICA / FUTA i.e. Natinal Guard r Reserves Active service r indefinite assignments are nt FICA taxable Subject t all statutry reprting/tax withhlding Taxable when paid Supplemental Wages Cmpany Stck Stck given t emplyees as cmpensatin Fully taxable when transferred t emplyee withut restrictin (i.e. vesting) Subject t all statutry tax withhlding Stck Optins Optin t purchase stck at a fixed price fr length f time Incentive Stck Optin Nnqualified (nn statutry) Stck Optin Emplyee Stck Purchase Plan Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 10 Use f material is t be used by study grup members nly

11 Incentive Stck Optins 3: Taxable and Nntaxable Cmpensatin Favrable tax treatment if restrictins are met (Surce pg 3-90) If stck held until 2 years after grant and 1 year after exercise => capital gain, nt W2 If stck sld prir t abve =>disqualifying dispsitin When stck is sld infrmatin statement t emplyee is required Emplyee Stck Purchase Plans Opprtunity t purchase stck at a discunt Maximum discunt is 15% Same hlding rules as Incentive Stck Optins When stck is sld infrmatin statement t emplyee is required Disqualifying Dispsitin If ISO r discunted ESPP stck is sld within 2 years f grant r within 1 year f exercise = disqualifying dispsitin Difference between value & purchase price is then incme Reprtable fr federal nly, but nt subject t withhlding Nn-qualified stck ptin exercises Value - Purchase Price = Taxable Value Fully reprtable/withhlding W-2 bx 12, cde V NQ Stck Optins & Divrce Optins transferred t nn emplyee spuse; when exercised: Scial Security, Medicare and FUTA reprtable t emplyee (W-2) Federal taxable and subject t withhlding fr nn emplyee ex spuse (1099, bx 3) Fed taxable 1099 bx 3 FITW (use supplemental rates) 1099, bx 4 And frm 945 Supplemental Unemplyment Benefits Paid in additin t state unemplyment benefits fr laid ff wrkers Subject t FITW Excluded frm Scial Security/Medicare nly if certain criteria met 2014 IRS cnfirmed Severance is nt SUB pay & therefre is FICA taxable Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 11 Use f material is t be used by study grup members nly

12 3: Taxable and Nntaxable Cmpensatin Emplyee Tips Emplyee must reprt t emplyer tips >$20 per mnth Frm 4070 (Emplyee Reprt f Tips t Emplyer) r emplyer s wn frm Due by 10 th f mnth fllwing mnth in which tips were received Electrnic tip reprting kay is subject t all statutry tax withhlding Tips less than $20/m are still taxable incme t emplyee Emplyee must reprt n persnal tax return Wages after death In same year as death W-2 Scial Security and Medicare nly and 1099, bx 3 t beneficiary In years after death Only 1099, bx 3 t beneficiary n withhlding An emplyee f GEM Crpratin dies n December 1, The emplyee is due wages f $400 fr the last days wrked. This payment is prcessed fr pay date December 21, What amunt f tax withhlding, if any, shuld be withheld frm the pay check? What reprting is required? Federal $ Sc Sec at 6.2% $ Medicare at 1.45% $ In January 2016, Payrll is advised that the same deceased emplyee is wed $500 fr unused vacatin. What tax shuld be withheld? Hw shuld the payment be reprted? Reprting & Withhlding Taxes n Taxable Nn Cash Benefits I.e. Persnal Aut Use, Value f Trips Awarded, etc. Must be reprted at least annually Withhlding Add t regular wages & tax entire amunt ver regular pay frequency r Withhld at supplemental wage rates Federal: 25% (r 39.6% as ap) Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 12 Use f material is t be used by study grup members nly

13 3: Taxable and Nntaxable Cmpensatin Special accunting rule Allwed fr nn cash fringe benefits Nvember & December values reprted in subsequent year 2015 Reprting perid Nvember 1, Octber 30, 2015 Nt fr use with GTL, mving expenses r prperty, i.e. stck Exceptin fr Persnal Aut Use Emplyer may chse nt t withhld federal incme tax n persnal aut use Must advise emplyee in writing By Jan 31 r Within 30 days f receipt f vehicle Bx 1 reprting and FICA reprting/withhlding still required Validate Yur Prgress Emplyee Benefits Knwledge f impact f taxable benefits Knwledge f impact f nn-taxable benefits Knwledge f a qualified plan (i.e. retirement plans, sec. 125, awards, mving) Knwledge f a nn-qualified plan (i.e. retirement plans, sec. 125, awards, mving) Knwledge f imputing fringe benefits Regulatry Knwledge f IRS regulatins impacting payrll Knwledge f IRS sec 129 (cmpnents f exclusin and limitatins) Knwledge f IRS sec 132 (cmpnents f exclusin frm incme) Knwledge f accuntable and nn-accuntable plans (e.g. business expense) Knwledge f federal tax requirements fr stck awards and purchases Knwledge f taxatin f wages paid t deceased emplyees Knwledge f taxatin f imputed incme (e.g. GTL, mving expense, etc.) Knwledge f allcated tips Knwledge f adptin assistance Knwledge f repayment f emplyer prvided lans Knwledge f supplemental wages Reprting Knwledge f Frm 4070 requirements Knwledge f Frm 8027 requirements Knwledge f emplyee tip reprting Cmpensatin/Benefits Ability t calculate grss pay Ability t calculate grss pay fr tipped emplyees Knwledge f impact f stck awards Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 13 Use f material is t be used by study grup members nly

14 Knwledge f impact f stck purchases Knwledge f special accunting rule Knwledge f federal standard mileage rates Knwledge f educatinal assistance incme inclusin Knwledge f educatinal assistance incme exclusin Knwledge f awards and prizes incme inclusin Knwledge f awards and prizes incme exclusin Knwledge f transit/parking/cmmuting taxatin/limits Ability t calculate emplyer paid taxes (grss-up) Ability t calculate imputed incme (e.g. GTL, persnal use f cmpany car, mileage) 3: Taxable and Nntaxable Cmpensatin Knwledge f taxable incme (e.g., fringe benefits, persnal use f cmpany car, mileage, relcatin, awards and prizes) Knwledge f nn-taxable incme (e.g., fringe benefits, persnal use f cmpany car, mileage, relcatin, awards and prizes) Ability t calculate federal taxable wages (fit, scial security, Medicare) Ability t calculate supplemental incme Ability t calculate hurs wrked (e.g. regular, vertime) Net, Dispsable, Take Hme Pay Ability t calculate net pay Ability t calculate dispsable earnings Ability t calculate take hme pay Ability t calculate ttal payrll (grss pay, vluntary/invluntary deductins, emplyer cst) Infrmatin cntained herein is exclusive prperty f the Clumbus Area Chapter Page 14 Use f material is t be used by study grup members nly