The HRT Department: increasing connectivity between human resources and tax (Affordable Care Act, credits and employment tax)

Transcription

1 The HRT Department: increasing connectivity between human resources and tax (Affordable Care Act, credits and employment tax)

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2015 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

3 Today s presenters Rebecca Truelove Ernst & Young LLP New York, NY Jennie DeVincenzo Ernst & Young LLP Iselin, NJ Brandon Pyers Ernst & Young LLP Philadelphia, PA Dorian Hunt Ernst & Young LLP Boston, MA Page 3 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

4 Agenda Introductions Employment tax considerations Affordable Care Act (ACA) Credits and incentives New market tax credits and federal extender opportunities Tax extenders updates Questions Page 4 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

5 Employment tax considerations Page 5 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

6 Employment tax: leading practices and the necessity of coordination between tax, human resources (HR) and payroll Coordination between tax, HR and payroll is crucial for maintaining accurate payroll and payroll tax records: Maintaining open lines of communication between tax and HR with monthly update meetings Having dedicated tax team members to answer payroll-tax-related questions as they arise Reviewing earnings and deductions taxability with the tax team annually, including benefit plan changes Including HR and payroll in planning and integration of mergers and acquisitions Typical issues that occur without proper coordination: Incorrect calculation of federal, state and local taxable wages (requires Forms W-2c and amended filings) Traveling employees not reported accurately Nexus issues for other tax types (new hires, employees telecommuting, address changes, etc.) Incorrect state or localities assigned to employees transferring between companies or states Increased unemployment tax rates due to lack of protesting claims or correctly coding terminations Interest and penalties for failure to notify state agencies of employee transfers Page 6 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

7 Mergers and acquisitions (M&A): employment tax considerations Employing entity reporting structure Consider use of reporting agent vs. entity-level filing Federal successorship implications FICA and FUTA wage carry-overs Address with payroll provider the accumulation and carryover of year-to-date data Quarterly and annual employment tax returns Form 941, Employer s Quarterly Federal Tax Return Form 941, Schedule D, Report of Discrepancies Caused by Acquisitions, Statutory Mergers or Consolidations (if applicable) Form 940, Employer s Annual Federal Unemployment Return Form W-2, Wage and Tax Statement, filing Standard or alternate procedure Employee communications Page 7 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

8 M&A: employment tax considerations Employment tax filings and applications (per state and local, per entity) Federal (Internal Revenue Service (IRS)) cover letters (if applicable) State and local income tax withholding applications State unemployment tax status reports Applications for transfer of unemployment experience (totals or partials) Account closure forms (unemployment and withholding) for predecessor (if applicable) State unemployment tax experience transfers Review partial transfer provisions and viable elections Model state unemployment tax rate impact and ramifications associated with transfers Consider historical, current and long-term employment tax structure to understand the costs and benefits post transfer Memorialize tax savings and cost analysis Page 8 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

9 M&A: employment tax considerations Coordination with payroll vendors Transfer of employees in payroll system Carry-over of historical wages Communication of Form W-2 procedure Make certain tax identifications, unemployment tax rates and filing frequencies are set up correctly in payroll system Post transfer follow-up Confirm withholding and unemployment accounts are established Confirm state unemployment tax rate assignments Confirm predecessor s account closings Confirm annual tax filings and reconciliations Protest incorrect tax rate assignments (if necessary) Respond to state agency inquiries or notices Page 9 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

10 M&A: employment tax opportunities Consider the structure of the transaction Stock and asset acquisitions between non-related entities Transfers between commonly owned and controlled entities Understand the state laws regarding total and partial transfers of employment Consider timing of the transaction Review voluntary contribution and joint account opportunities Consider refund opportunities for prior transactions Page 10 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

11 Short-term business travelers (STBT): basic rules and wage withholding requirements for employers Wages paid to a resident for services provided within and outside of the state generally are subject to resident income tax. Absent a reciprocal agreement, nonresident income tax is required on wages for services earned within the nonresident state. When withholding state income tax, priority generally is given to the nonresident income tax. The resident state may consider nonresident income tax in the income tax withholding calculation, depending on the state. Page 11 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

12 Short-term business travelers: the relevance of nexus When a nonresident employee performs services in the state, those services generally create employment tax nexus within that state. In addition to triggering an income tax withholding requirement, other business taxes, such as sales and use, may also be triggered. Keep in mind, that once there is a nonresident withholding obligation, a resident withholding obligation may also apply. If employees regularly work from home, most states consider the home office a place of business (creating nexus). Businesses with employees who regularly work from home sometimes fail to pay and file for other business taxes (e.g., sales and use). Page 12 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

13 Short-term business travelers: the current domestic landscape Proposed federal legislation (HR 1129) Mobile Workforce Simplification Act Allows employees to work outside their home states for up to 30 days without being subject to nonresident state income tax and withholding Similar to earlier proposed bills that historically have not received support or traction. Significant support from Council on State Taxation Legislation has opposition in several states where the revenue impact would be significant (New York and California) Page 13 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

14 Short-term business travelers: the current domestic landscape States actively seeking to generate revenue Aggressive electronic state audits (e.g., New York and Connecticut) States changing deferred compensation taxation (e.g., New York, Minnesota and Georgia) States consider wages and salary and equity compensation Local tax jurisdictions also now auditing nonresident workforce (e.g., Philadelphia, Columbus and Wilmington) Issues employers currently face: Income tax not withheld in nonresident work state for short-term, business-traveling workforce Statute of limitations (employer or employee) Limited system capabilities to track STBTs and calculate the appropriate nonresident wage allocation and income tax withholding Complicated withholding tax calculation for deferred and equity-based compensation Page 14 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

15 Affordable Care Act (ACA) Page 15 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

16 Summary of key employer burdens Systems readiness Ability to track employees by entity through their initial and ongoing measurement and stability periods Ability to identify employees who should be under an offer of coverage Ability to track by month and by entity all required fields for Sections 6055 and 6056 reporting Analytics and reporting Define eligible employees using look-back method Monitor ongoing employment status based on actual hours worked by entity Monitor 4980H(a) excise penalty risk by entity (95% rule, 70% for 2015) Identify data location of all data elements required for employer reporting Sections 6055 and 6056 IRS informational reporting data by month and by entity Interaction with marketplaces Employee communications Designate a team responsible for promptly analyzing and responding to marketplace queries or notices Make certain that systems are programmed to pull the required data to track and respond to notices Establish a process so the notices are circulated to the correct team for a response (e.g., educate mail room employees, managers, business unit leaders) Distribute Fair Labor Standards Act Section 18B notices to all new hires within 14 days of start date Develop a broad employee communication plan to facilitate the exchange process, including employee education workshops, additional call center staffing and support to address ACA queries, web-based education and tools, and escalated employee queries Page 16 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

17 The ACA is a business issue The ACA is not only a benefits issue it is a business issue Shareholders, boards and audit committees need to understand the costs and tax liabilities and plan for minimizing their exposure. The ACA impacts the HR, timekeeping and payroll, information technology, accounting, tax, legal and internal audit functions. Company systems and processes must be capable of complying with significant reporting requirements. The ACA is expected to expand health coverage to an estimated 25 million previously uninsured Americans by Depending upon your workforce, cost-saving opportunities may exist for your business and employees. Page 17 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

18 Are your systems and processes ready and capable? Time and attendance Payroll Systems and processes may be incapable of locating and aggregating data to prepare calendar-month statutory reports Labor scheduling Section 6055 Contingent worker database Consolidated data Section 6056 Prepare Sections 6055 and 6056 IRS reports for each entity Prepare Sections 6055 and 6056 individual statements Employee master data Benefits administration Benefits administration Outsourced providers Page 18 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

19 ACA financial, accounting and tax implications The ACA creates a business issue, not just a benefits issue. On 28 June 2012, the US Supreme Court upheld the individual mandate and indicated that the penalties under the ACA are considered to be taxes. Shareholders, boards and audit committees want to understand the costs and tax liabilities and plan for minimizing their exposure. External auditors need to make certain controls are appropriate to mitigate significant risks to the company. Systems and processes need to be established to prepare for significant IRS reporting requirements. Cost increases should be quantified to the budget and plan for gradual changes. Companies are including the ACA in the due diligence process during the acquisition process. The ACA is one of the most significant business changes since the Sarbanes-Oxley Act. Page 19 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

20 Risk factors The following represent factors often leading to higher risk because of increased costs and assessment of penalties under the ACA: Failure to provide affordable coverage to full-time employees resulting in excise tax liability (IRC Section 4980H Excise Tax) $2,000 multiplied by total number of full-time employees Or $3,000 multiplied by total number of full-time employees not offered affordable coverage Failure to report properly to IRS, resulting in failure-to-file penalties ($100 per day, per return) Each Form 1095-C qualifies as a separate return; the penalty potential for a taxpayer is the number of FT employees x $100 per day M&A activity creates risk and requires ACA due diligence to be incorporated into broader due diligence efforts FAS 5 considerations apply in determining tax liability If no liability recorded, company needs to perform an assessment and document controls to support the position Page 20 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

21 Credits and incentives Page 21 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

22 What is Work Opportunity Tax Credit (WOTC)? Federal income tax program Encourages employers to hire from various target groups Credit given for hiring individuals who are: Qualified veterans (unemployed, disabled, using food stamps) Qualified food stamp recipients Designated community residents Long-term family assistance recipients (Temporary Assistance for Needy Families (TANF), formerly Aid to Families with Dependent Children) Qualified ex-felons Qualified SSI recipients Vocational rehabilitation referrals Qualified summer youth employees Qualified via Title IV-A (aid to families whose children are dependent recipients) Page 22 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

23 WOTC basics Screen candidates during the applicant and onboarding process to see if they represent one of the targeted groups (veterans, those on food stamps, etc.). Meet the on-or-before-job-offer requirement Federal requirement is to have all WOTC forms for those screened and eligible submitted to the state agency within 28 days of their start date. Applicable state agencies (e.g., Department of Labor) will provide a state certification or denial. Employees who are certified as WOTC eligible, start earning credit after they work a minimum of 120 hours. Once an employee works 400 hours, they can start maximizing the WOTC credit. The WOTC credit can average $2,400 for many eligible employees, with a maximum credit of up to $9,600 for unemployed and disabled veterans. Page 23 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

24 WOTC overview integrated approach to credits and incentives State training credits LEED advisory Environmental green credits State EZ credits Indian employment credit Job creation credits Charitable contribution credits Federal EZ hiring credits WOTC (location and payroll data) ACA Property tax abatements Historic rehab credits Workforce services wage subsidies State pointof-hire credits Child care credits Investment tax credits Discretionary incentives Negotiated credit compliance Page 24 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

25 Workforce Services proactive recruitment and community involvement Workforce Services connects clients with community-based organizations across the country that offer a range of cash-based workforce incentive programs, such as on-the-job training, wage reimbursements and wage subsidy programs. Typical cash reimbursement programs range from $700 to $5,000 per eligible new hire. Clients can utilize the job posting functionality to increase the pool of tax-credit-eligible applicants, increasing the likelihood of hiring a tax-credit-eligible candidate. Clients can increase their WOTC eligibility by 1.5% to 4% utilizing these services. Page 25 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

26 State point-of-hire credits Illinois Veteran Employment Tax Credit Illinois Unemployed Veteran Job Tax Credit Massachusetts Hiring Incentive Training Grant New York Hire a Vet Credit New York Minimum Wage Reimbursement Tax Credit New York Youth Works Tax Credit New York Workers with Disabilities Employment Tax Credit South Carolina Recipients of Family Independence Benefits Texas Tax Refund for Wages Paid to TANF Recipients Page 26 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

27 State employment-driven incentive programs California Competes Tax Credits Connecticut First Five Job Creation Program Illinois Economic Development for a Growing Economy Program Florida Governor s Quick Action Closing Fund Grow New Jersey Assistance Program New York Excelsior Jobs Program Maine Employment Tax Increment Financing Massachusetts Economic Development Incentive Program Massachusetts Life Science Tax Incentive Program Texas Enterprise Fund Page 27 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

28 Benefits of HR and tax connectivity Knowledge of timing of new hires (i.e., projections) Increased awareness of employee hiring initiatives, mass layoffs, etc. Full-time, part-time, seasonal, temporary, nature of new employees, etc. Employee trends and movement Intimate knowledge of the hiring process Training initiatives Application and compliance assistance Page 28 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

29 New Markets Tax Credit (NMTC) Program and federal extender opportunities Page 29 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

30 NMTC Program overview The NMTC Program was enacted in 2000 to help spur economic and community development and job creation in low-income communities. Community development entities (CDEs) receive a credit (39% over seven years) against federal (and sometimes state) income taxes, which they provide to investors who make qualified equity investments (QEIs). CDEs use the proceeds from the QEIs to make investments in qualified, active lowincome community businesses (QALICBs), typically in the form of forgivable loans. QALICB: A business that develops or rehabilitates commercial, industrial, retail and mixed-use real estate projects in a low-income community A business that develops or rehabilitates community facilities, such as charter schools or health care centers, in a low-income community. A business that develops or rehabilitates for-sale housing units located in a low-income community. Many people ignore the program because they don t have a tax liability (i.e., can t use the tax credits). Remember, a qualified company does not receive a tax credit, but instead receives the forgivable loan to reduce its cash investment in its projects. Page 30 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

31 What is HR connection? Who and what qualifies for NMTC Program financing? Qualified projects: Asset purchases large capital expenditures for assets used in the business that typically will result in creation of jobs or retention of jobs Development new development or expansion of real estate Ongoing business operations such as inventory, operating supplies, etc. Combination one or more of the above Projects must have a positive community impact (jobs or services). It is important to work with HR so that you can make the best case possible to the CDEs. There are a lot of companies that want to pursue forgivable loans. Generating 100 jobs Or Generating 100 jobs that provide an annual salary of $40,000 with partial benefits provided, and 50 hours a year of training toward a certification with upward mobility Page 31 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

32 Tax extenders update Page 32 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

33 Questions? Page 33 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015

34 Contacts Rebecca Truelove Ernst & Young LLP New York, NY Brandon Pyers Ernst & Young LLP Philadelphia, PA Jennie DeVincenzo Ernst & Young LLP Iselin, NJ Dorian Hunt Ernst & Young LLP Boston, MA Page 34 Sixth Annual Indirect, State and Local Tax Conference Boston 17 March 2015