Payroll, Information, and Other Reporting Requirements for California

Transcription

1 Payroll, Information, and Other Reporting Requirements for California

2 Websites of Interest to Small Businesses Organization Information Available Internet Address IRS (homepage) Internal Revenue Service Federal payroll taxes and income taxes Electronic Federal Tax Payment System (EFTPS) Pay federal taxes electronically EDD (homepage) Employment Development Department State payroll taxes, unemployment and disability insurance, benefits, job placement, labor market information, EDD forms Social Security Administration Board of Equalization Property taxes, special taxes, sales taxes, use taxes CalGOLD (Environmental Protection Agency) Business permit assistance California Chamber of Commerce Business news and commentary employment posters California Contractors State License Board California Department of Consumer Affairs Department of Industrial Relations: Notice to Employee Labor Law: Division of Labor Standards Enforcement Workers Compensation Contractor regulation and licensing in more than 40 classifications Licensing information in more than 200 business categories, such as the medical and financial professions DLSE NTE Labor Code Notice State wage and hour issues Insurance against on the job injuries California Tax Agencies Tax information and useful links for business Franchise Tax Board State income tax U.S. Citizenship and Immigration Service Employment Eligibility Verification, Form I 9 U.S. Department of the Treasury Secretary of State Business filings (corporations, limited liability companies, etc.), notary public applications, uniform commercial code filings Small Business Administration Financing, training, advocacy for small firms U.S. Department of Labor Federal wage and hour issues General Services Administration Per diem rate changes Publication 15 (Circular E) Future developments relating to Circular E Page 1

3 2016 RATES AND WAGE LIMITS In compliance with the federal and state of California laws, the following tax rates and limits are effective January 1, 2016: LIMIT WAGE LIMIT RATE TAX FICA Social Security Tax Employee $118, % $7, Social Security Tax Employer $118, % $7, Medicare Tax Employee No limit 1.45% No limit Medicare Tax Employer No limit 1.45% No limit Additional Medicare Tax Employee Only Over $200, % No limit California SDI $106,742.00*.9% $ * FUTA Standard Rate $7, % $42.00 FUTA Credit Reduction (2015) $7, %* $105.00* NEW FILING DATE FOR 2016 FORMS W 2, W 3, AND 1099 Both paper and electronically filed 2016 forms must be filed with the Social Security Administration by January 31, This has been put in place to help reduce identity theft related to tax returns. MINIMUM WAGE California s minimum wage is $10.00* per hour, effective January 1, Paying less than the minimum wage can incur a penalty per underpayment, per pay period. A full time minimum wage worker in California, working 40 hours per week, 52 weeks per year, will earn $20,800. PAID SICK LEAVE Beginning July 1, 2015, employees who work 30 days or more within a year after their date of hire will accrue sick leave. Employers can limit employee use of paid sick days to 24 hours, or 3 days, in each year of employment. Sick days carry over each year, but employers can cap the accrual at 48 hours or six days. This applies to public and private employers and for profit and not for profit companies. Employees may not begin using accrued sick days until the 90 th day of employment. Employers do not pay sick leave earned upon termination. Previously accrued and unused paid sick days must be reinstated if an employee leaves employment and is then rehired within one year. Upon rehire, the employee is allowed to use those previously accrued sick days and begin accruing additional paid sick days. Employers must provide employees with written notice informing the employee of the paid sick leave available each pay period. This notice can be on the pay stub or in a separate writing provided to the employee with the payment of wages. In terms of recordkeeping, employers must keep the number of hours employees worked, paid sick leave accrued, and paid sick leave used by employees for at least three years. *Changes from previous year Page 2

4 CALIFORNIA IS, AGAIN, A CREDIT REDUCTION STATE FOR 2015 Credit Reduction State A state that has not repaid money borrowed from the federal government to pay unemployment benefits is a credit reduction state, determined by the Department of Labor. If an employer pays wages that are subject to the unemployment tax laws of a credit reduction state, that employer must pay additional federal unemployment tax. Employers must include liabilities owed for the credit reduction with the fourth quarter deposit and report the liabilities incurred during the fourth quarter on Form 940. California employers require additional steps to complete Form 940 reporting for Part I, Line 2 Mark the box that indicates Schedule A must be completed. California employers must attach Form 940 (Schedule A), Multi State Employer and Credit Reduction Information. On this form, employers must compute the amount of the credit reduction and carry the number to Form 940, line 11, as an additional tax in Part III. Employers must include the liability owed for the credit reduction with the fourth quarter deposit. Employers may deposit the anticipated extra liability throughout the year, but it is not due until the due date of the deposit for the fourth quarter. FEDERAL UNEMPLOYMENT TAX DEPOSITS (FUTA) FUTA tax must be deposited quarterly if the accumulated unpaid liability is $500 or more. Deposits are due on the last day of the month following the end of the quarter (i.e., April 30, July 31, October 31, and January 31). FORM 941 Form 941 has an additional line (5d) for the 0.9% Medicare surtax on wages earned. Employers must withhold this additional tax on wages over $200,000 beginning in the pay period that wages reach that limit. Employers do not match this amount; it is a deduction from only the employee s check. The additional Medicare tax withheld from the employee will be reported in Box 6 Medicare Tax Withheld on Form W 2. *Changes from previous year Page 3

5 FEDERAL TAX DEPOSITS Electronic funds transfer (EFTPS) is required for all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Determining the Type of Deposit Schedule The deposit schedule for 2016 is determined by the payroll liability during the look back period (July 1, 2014 and June 30, 2015). Agricultural depositors (Form 943) look back period is the calendar year If you have less than $50,000 in payroll tax liabilities during the look back period, you are a monthly depositor. If you have more than $50,000 in payroll tax liabilities, you are a semiweekly depositor. Semi weekly depositors must complete Schedule B (Form 941), report of tax liability for semiweekly schedule depositors, and submit it with Form 941. Monthly Deposit Schedule: Payroll tax is due by the 15 th day of the following month. Semi Weekly Deposit Schedule: If payday falls on a Wednesday, Thursday, and/or Friday, tax deposits are due by the following Wednesday. If the payday falls on Saturday, Sunday, Monday, and/or Tuesday, tax deposits are due by the following Friday. Electronic Federal Tax Payment System (EFTPS) Payments must be initiated by 5:00 p.m. the day before the date the deposit is due. EFTPS Voice Response System EFTPS Customer Service for Businesses An EFTPS trace number will be provided with each successful payment. This number can be used as a receipt or to trace the payment. Dishonored Payments Any form of payment that is returned from a financial institution is subject to a penalty of $25 or 2% of the payment whichever is more. It is a crime for an employer to fail to remit withholdings taken from an employee s wages. When the amount the employer failed to pay into the fund or funds exceeds five hundred dollars ($500), the employer may be punishable by imprisonment for a period of not more than one year, by a fine of not more than one thousand dollars ($1,000), or by both imprisonment and fine. All other violations shall be punishable as a misdemeanor. Updating Bank Account Information in EFTPS A new account must be created in order to update bank account information. After logging in, select Additional Taxpayer Enrollment under enrollment. Replace the existing bank account information, then select a new PIN. Logout to save the changes. New payments can be scheduled when logging in with the new PIN. Unless the previous enrollment is terminated, it is still active in the system and erroneous payments may be made from that account if the PIN associated with the account is used. *Changes from previous year Page 4

6 DEPOSITS ON BUSINESS DAYS ONLY If a deposit is required to be made on a non business day, the deposit is considered timely if it is made by the close of the next business day. A business day is any day other than Saturday, Sunday, or legal holidays. Legal Holidays The term legal holiday means any legal holiday in the District of Columbia. Federal legal holidays for 2016 are listed below: January 1 New Year s Day January 18 Birthday of Martin Luther King, Jr. February 15 Presidents Day April 15 District of Columbia Emancipation Day May 30 Memorial Day July 4 Independence Day September 5 Labor Day October 10 Columbus Day November 11 Veterans Day November 24 Thanksgiving Day December 26 Christmas Day (observed) CHANGE OF ADDRESS To notify the IRS of a new business mailing address or business location, employers should use Form 8822 B, Change of Address Business, for any address change. If the prior mailing address was in California, mail the completed form to the Department of the Treasury, Internal Revenue Service, Ogden, UT Do not mail Form 8822 B with an employment tax return. PAYMENT OPTION FOR CALIFORNIA EMPLOYMENT DEVELOPMENT DEPARTMENT (EDD) PAYMENTS Just Pay It This is a secure, easy, and convenient payment option that allows employers to make electronic payroll tax deposit (Form DE 88) payments from a computer using a savings or checking account with no processing fee. This option may be used by employers who are not yet enrolled with the EFT Program but need to make a payment right away. Employers must be registered with EDD and have an active EDD employer account number. Employers must have a bank routing number and savings or checking account number. Employers do not need to be enrolled in EDD s EFT Program. Payment transactions completed after 3:00 p.m., Pacific time, will settle on the next banking day. *Changes from previous year Page 5

7 STANDARD MILEAGE RATES The standard mileage rate changed to 54.0* cents per mile for all business miles. This rate can be used instead of keeping a detailed record of the cost of driving a car. For charity, the rate is 14 cents per mile. The rate for driving to medical appointments and moving is 19* cents per mile. Parking fees and tolls may be deducted and still use the mileage allowance. SUPPLEMENTAL WITHHOLDING RATES The withholding rates for supplemental wages are as follows: Federal income tax 25.00% Federal income tax on employees supplemental wages in excess of $1,000,000 year to date (or the highest rate of income tax for the year)* 39.60% State income tax 06.60% State income tax for bonuses and stock options 10.23% If the supplemental wage is given to the employee at the same time as the employee s regular wages, the employer is required to withhold California personal income tax (PIT) based on the payroll period using the PIT withholding schedules. Supplemental wages include bonuses, overtime, commissions, back pay, nondeductible moving expense reimbursements, etc. Supplemental pay is any compensation paid in addition to regular pay. SUBMITTING FORMS W 4 WITH EXCESSIVE ALLOWANCES Employers are no longer required to routinely send copies of Forms W 4 of employees claiming more than 10 allowances and certain exempt Forms W 4 to the IRS. Forms W 4 are still subject to review by the IRS. However, employers only need to submit them to the IRS when directed to do so in a written notice to the employer or in future published guidance. The IRS will use information reported on Forms W 2 to more effectively identify workers with withholding compliance problems. In some cases, if a serious under withholding problem is found to exist for a particular employee, the IRS will notify the employer to withhold income tax for that employee at a more appropriate rate. This new process will also enable the IRS to more effectively address situations in which employees fail to file a federal income tax return. Employers cannot accept a substitute Form W 4. *Changes from previous year Page 6

8 CALIFORNIA EMPLOYERS MUST INCLUDE A WRITTEN NOTICE IN NEW HIRE PACKETS As of January 1, 2012, a written notice, Form DLSE NTE (Appendix C), must be added to new hire packets for all non exempt employees in California (with the exception of public employees) at the time of hiring. The notice must be in a language the employer normally uses to communicate employment related information to the employee ( The revision date of the most current form is dated September 2014, which includes the new paid sick leave information. The notice must contain the following information: The rate or rates of pay, and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission or otherwise, including any rates for overtime, as applicable. Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances. The regular payday designated by the employer in accordance with the requirements of this code. The name of the employer, including any doing business as (dba) names used by the employer. The physical address of the employer s main office or principal place of business, and mailing address, if different. The telephone number of the employer. The name, address, and telephone number of the employer s workers compensation insurance carrier. The company s sick leave accrual policy. Any other information the Labor Commissioner deems material and necessary. An employer shall notify employees in writing of any changes to the information set forth in the notice within seven calendar days after the date of the changes, unless one of the following applies: All changes are reflected on a timely wage statement furnished if that information is contained in the pay stub. Notice of all changes is provided in another writing required by law within seven days of the changes. ITEMS THAT MUST BE INCLUDED ON EMPLOYEES PAY STUBS Required items include the following: (1) gross wages earned, (2) total hours worked by the employee, (3) all deductions, (4) net wages earned, (5) inclusive dates of the pay period, (6) employee s name and Social Security number, (7) employer s name and address, (8) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each rate by the employee, and (9) any reimbursement made for employee expenses. The amount of available sick leave must be recorded on each paystub (or in some other written form on payday), and employers must keep records of sick leave accrual and use for three years. Added Note: As of January 1, 2008, all employers are required to remove all but the last four digits of employees Social Security numbers on check stubs or similar documents, or substitute with some other identifying number. *Changes from previous year Page 7

9 EMPLOYEE S SOCIAL SECURITY NUMBER REQUIREMENTS Do not accept a Social Security card that states, Not valid for employment. A Social Security number issued with this legend does not permit employment. Social Security numbers do not begin with an 8 or 9, do not list all 1 s or 3 s, and are not in a sequential number order such as IRS INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITINS) FOR ALIENS Do not accept an ITIN in place of a Social Security number for employee identification or for work. An ITIN is only available to resident and nonresident aliens who are not eligible for U.S. employment and need identification for other tax purposes. An ITIN is a 9 digit number beginning with the number 9 and has a range of as the fourth and fifth digits. This number is formatted similar to a Social Security number (for example, 9NN 7N NNNN). Effective April 12, 2011, the range was extended to include and in the fourth and fifth digits. Newly issued ITIN s will expire after five years unless the recipient reapplies for validation. If an employer discovers that a worker was hired and worked using an ITIN, that employer must still report the wages. Enter all zeros in Box A on Form W 2 (employee s social security number). An individual with an ITIN who later becomes eligible to work in the United States must obtain a Social Security number. FOREIGN AGRICULTURAL WORKERS Compensation of $600 or more paid in a calendar year to an H 2A visa agricultural worker for agricultural labor must be reported. If the H 2A visa agricultural worker furnishes a valid taxpayer identification number, report these payments in box 1 of Form W 2. If the worker does not furnish a valid taxpayer identification number, report the payments on Form 1099 MISC. COMPLETING FORM I 9 (EMPLOYMENT ELIGIBILITY VERIFICATION) Employers should use the most current version of Form I 9, which bears a revision date of March 8, 2013, and an expiration date of March 31, All U.S. employers must complete and retain a Form I 9 for each individual hired for employment in the United States. Form I 9 must be kept by the employer for either three years after the date of hire, or for one year after employment is terminated, whichever is later ( Employers may use the Spanish version for reference, but the English version must be completed to meet the employment eligibility verification requirements. Section 1 should be completed by the employee no later than the first day of employment. Section 2 should be completed by the employer or the employer s representative by examining the evidence of the employee s identity and employment authorization within three business days of the employee s first date of employment. Section 3 must be completed to reverify authorization of documents before the expiration date. California Department of Motor Vehicles will be issuing driver s licenses to undocumented persons who can prove identity, California residency, and meet all other licensing requirements. This card is not acceptable for official federal purposes, and this should be noted on the card. This card is NOT acceptable as Form I 9 verification. Keep forms and information related to Form I 9 in a common file rather than the employee s personnel file. *Changes from previous year Page 8

10 REPORTING NEWLY HIRED OR REHIRED EMPLOYEES (FORM DE 34) Effective January 1, 2013, new legislation now defines an individual as a rehire if the employer/employee relationship has ended and the returning individual has been separated from that same employer for at least 60 consecutive days. Employers are required to report all newly hired and rehired employees to the EDD within twenty (20) days of the start of work date. The start of work date is the first day services were performed for wages. RECORDKEEPING Keep all records of employment taxes for at least four years. The items below should be available for IRS review. Employer s identification number. Amounts and dates of all wage, annuity and pension payments. Amounts of tips reported to the employer by employees. The fair market value of in kind wages paid. Names, addresses, Social Security numbers, and occupations of employees and recipients. Any employee copies of Forms W 2 and W 2c returned as undeliverable. Dates of employment for all employees. Periods for which employees and recipients were paid while absent due to sickness or injury and the amount, and weekly rate, of payments made by employers or third party payers. Copies of employees and recipients income tax withholding allowance certificates. Copies of employees Earned Income Credit Advance Payment Certificates. Dates, amounts paid, and acknowledgment numbers for deposits paid using EFTPS. Copies of returns filed and any confirmation numbers. Records of fringe benefits and expense reimbursements provided to employees, including substantiation. AGRICULTURAL OVERTIME PAY RULE Different overtime rules apply to employees working in agriculture. Agricultural laborers earn overtime pay after working 10 hours per day or on the seventh consecutive day in a work week. Overtime pay is at the rate of one and one half times straight pay after 10 hours per day. For the first 8 hours of the seventh consecutive workday in a work week, the rate is two times straight pay rate after 8 hours on the seventh day. The one day of rest in seven requirement does not apply. An employee may be employed on 7 work days in one work week with no overtime time required if the total hours the employee worked does not exceed 30 and the total hours in any one workday does not exceed 6. Employees whose primary duties are those of an irrigator are not entitled to overtime. *Changes from previous year Page 9

11 Employers must pay at least the minimum wage to all agricultural workers, including those who perform piecework jobs. Wage orders will now be received by certified mail and payments made directly to the Employment Development Department. FAMILY EMPLOYMENT Children age 18 or older, and working for their parents in a trade or business, will have their wages taxed for Social Security, state unemployment tax, state disability insurance, employment training tax, and federal and state withholding taxes. Children age 18 or older, and working for their parents in a trade or business, are exempt until age 21 for federal unemployment tax. Wages of an individual employed by his/her spouse will be taxed for Social Security and federal and state withholding tax, but are exempt from state unemployment tax, state disability insurance, employment training tax, and federal unemployment tax. EMPLOYERS OF HOUSEHOLD WORKERS Household workers (employees) may include, but are not limited to, cooks, butlers, housekeepers, governesses, maids, valets, babysitters, gardeners, and chauffeurs. Social Security and Medicare taxes apply to the wages of household workers who are paid $1,900 or more in cash or an equivalent form of compensation ($2,000 for 2016). Cash wages of $1,000 or more per quarter are then subject to federal unemployment tax. Employers must register with EDD when cash wages totaling $750 or more are paid in a calendar quarter. Registration must be within 15 days after paying $750 in total cash wages. If employers pay $750 to $999.99, state disability insurance (SDI) must be withheld. If wages fall below $750 in a following quarter, the employer must continue to withhold SDI from the employees wages through the remainder of the current year and through the following calendar year. If employers pay $1,000 or more, SDI must be withheld, and unemployment insurance (UI) and employment training tax (ETT) payments are required. If wages fall below $1,000 in a following quarter, the employer must continue to withhold SDI from employees wages and pay UI and ETT through the remainder of the current year and through the following calendar year. When a household employee is hired, Forms I 9, W 4 and a written notice (DLSE NTE) should be completed. Household employers must also file Form DE 34, Report of New Employee(s), for each new employee within twenty (20) days of the start of work date and mail the form to EDD. The household employer is required to report employee wages that are subject to California personal income tax (PIT), but is not required to withhold PIT. *Changes from previous year Page 10

12 EMPLOYEES MEAL AND REST BREAKS Nonexempt employees must receive an opportunity to take a 10 minute paid rest break for every four hours worked, or after a significant portion thereof usually three hours. Nonexempt employees must be provided with a 30 minute unpaid meal break if the shift cannot be completed in six hours or less. Employers must provide 10 minute rest breaks according to the following table: Hours of Work Rest Breaks Employers must provide a meal break of at least 30 minutes for every work period of more than five hours. If six hours of work complete the day s work, the employee may voluntarily choose to not take the meal break. Meal breaks may be unpaid if all the following conditions are met: The meal break lasts at least 30 minutes. The employee is relieved of all duty. The employee is free to leave the premises. At the employer s discretion, meal breaks may be longer than 30 minutes. Any meal break longer than one hour may raise issues related to a split shift. FORM 941 OR FORM 944 Employers may choose to file Form 941 instead of Form 944. If an employer was previously notified to file Form 944, Employer s ANNUAL Federal Tax Return, but prefer to file quarterly Forms 941, Employer s QUARTERLY Federal Tax Return, to report Social Security, Medicare, and withheld federal income taxes, that employer must first contact the IRS to request to file Forms 941 rather than Form 944. Employers must receive written notice from the IRS before filing Form 941 instead of Form 944. IRS states that neither the form nor the instructions permit rounding. *Changes from previous year Page 11

13 REPORTING CORRECTIONS TO FORMS 941 AND 944 Forms for Prior Period Adjustments The IRS has developed Form 941 X and Form 944 X to replace Form 941 c, Supporting Statement to Correct Information. Form 941 X and Form 944 X also replace Form 843, Claim for Refund or Request for Abatement, for employers requesting a refund or abatement of overreported employment taxes. However, Form 843 should be used when requesting a refund or abatement of assessed interest or penalties. EDD PAYROLL TAX REPORTING AND FORM CHANGES 2011 Beginning in 2011, employers will report their unemployment insurance, employment training tax, and state disability insurance wages and contributions, along with personal income tax withholdings, on a quarterly (instead of annual) basis. At the end of each calendar quarter, employers will submit the Quarterly Contribution Return and Report of Wages (DE 9) and the Quarterly Contribution Return and Report of Wages (Continuation) (DE 9C) forms. Forms DE9 and DE9c must be mailed together in the same envelope. Employers will continue to make deposits using Form DE 88. Annual household employers will continue to file Employer of Household Worker(s) Quarterly Report of Wages and Withholdings (DE 3BHW) and Employer of Household Worker(s) Annual Payroll Tax Return (DE 3HW). This reporting change will not affect deposit and return due dates. FORM 8027 EMPLOYER S ANNUAL INFORMATION RETURN OF TIP INCOME AND ALLOCATED TIPS The IRS is matching its database of qualifying establishments to a list of filed returns to track down firms that do not file tip returns. Firms that did not file this return will receive a letter that outlines filing requirements and provides blank forms for recent years. The IRS is also matching the employee Form 4137 (FICA on unreported tip income) to the employer Form Inconsistencies will elicit inquiries from the IRS; and in some cases, employers will be required to pay the FICA on unreported tips. FICA tax is not owed on unreported tips until employers receive a Section 3121(q), Notice and Demand from the IRS. The Notice and Demand instructs the employer to include the FICA tax for the unreported tips in the employer s next Form 941. This tax is treated as accumulated by the employer on the Date of Notice and Demand as printed on the notice. The employer must include this amount on the appropriate line of the record of tax liability (Line 5e). *Changes from previous year Page 12

14 TIP COMPLIANCE: AUTOMATIC GRATUITIES ARE WAGES NOT TIPS Automatic gratuities are to be treated as wages and not tips. An example of an automatic gratuity is when a restaurant sets a mandatory fee for large groups that is equal to a fixed percentage of the bill. As a result, these automatic gratuities are not eligible for the employer tip credit and cannot be used to figure the tip rate for an establishment in determining if the servers are reporting enough of their tips, or when computing employees overtime rates. These automatic gratuities are to be treated like any other taxable wage payments that are subject to tax withholdings by the employer and recorded as wages on the employees Form W 2. COMPANIES USING PAYROLL SERVICES ARE STILL RESPONSIBLE FOR TAX DEPOSITS The IRS continues to warn employers that outsourcing payroll duties to third party payroll service providers can streamline business operations, but employers are ultimately responsible. The IRS offers the following suggestions to employers: The address of record with the IRS should remain the employer s address and should not be changed to that of the payroll service. If there are any issues with the account, the IRS will contact the employer directly; and Insure that the payroll service provider is using the Electronic Federal Tax Payment System (EFTPS). Employers should register on EFTPS to receive their own PIN and use this PIN to periodically review payment history online. S CORPORATIONS COMPENSATION OF OFFICERS Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent that amounts are reasonable compensation for services rendered to the corporation. This includes fringe benefit expenditures made on behalf of the officers and employees owning more than 2% of the corporation s stock. Report amounts paid for accident and health insurance coverage for shareholders owning more than 2% (including spouse and dependents) as wages in box 1, and as an information item in box 14, of Form W 2. ELECTIVE DEFERRAL LIMITATIONS Plan Type (k); 403(b); salary reduction SEP $17,000 $17,500 $17,500 $18,000 SIMPLEs $11,500 $12,000 $12,000 $12,500 *Changes from previous year Page 13

15 CATCH UP CONTRIBUTIONS FOR AGE 50+ These contributions apply to individuals who have attained age 50 by the end of the year. Plan Type (k); 403(b); SARSEP; 457 $5,500 $5,500 $5,500 $6,000 SIMPLEs $2,500 $2,500 $2,500 $3,000 CHANGES TO FORMS W 2 AND W 3 (2012 AND FORWARD) Form W 3, Kind of Employer To improve document matching compliance, box B of Form W 3 has been expanded to include a new section, Kind of Employer, which contains five new checkboxes. Filers are required to check one of these boxes or the None apply box if none of the other boxes apply. SDI Reporting on Form W 2 Use box 19 (local income tax) with the abbreviation CASDI and the SDI amount withheld. If box 19 is unavailable, use box 14, Other. If wages are not subject to SDI, type CASDI (zero). Federal Earned Income Tax Credit Notification (EITC) Employers are required to notify employees about the availability of the EITC. Employers must provide written notification to employees in person, or by mail, within one week (before or after), or at the same time an annual wage summary is provided, including Form W 2 or Form Employer Provided Health Care Coverage Reporting is mandatory for firms that file more than 250 Forms W 2. Further relief is available for smaller employers filing fewer than 250 Forms W 2 by making the reporting requirement optional and continuing until further guidance is issued. The amount is not taxable and is reported in box 12 with code DD. REPORTING OF EMPLOYER SPONSORED HEALTH COVERAGE ON FORM W 2 Reporting the cost of health care does not mean it is taxable. This reporting is for information purposes only. An employer is not required to issue Form W 2 solely to report the value of the health care coverage to employees. The value of the health care coverage should be reported in box 12 with code DD to identify the amount. There is no reporting option on Form W 3 for the total of these amounts. However, until further notice from the IRS, reporting is only required by employers filing 250 or more Forms W 2. Reporting of health coverage cost by smaller employers is optional. Changes to Cafeteria Plans For plans beginning after December 31, 2014, an employer may allow an employee an annual limit of $2,550 to contribute to a health flexible spending arrangement maintained through a cafeteria plan by means of a salary reduction agreement. If the cafeteria plan does not limit the health flexible spending account contribution, the salary reduction, along with all of the benefits offered under the plan, are includible in the employee s gross income. S corporation shareholders are not considered to be employees for this purpose. This benefit should not be treated as a reduction in distributions to a 2% shareholder. A 2% shareholder is treated like a partner in a partnership for fringe benefit purposes. *Changes from previous year Page 14

16 UNCASHED OR UNCLAIMED WAGES PRESUMED ABANDONED Every state has escheat tax regulations requiring employers to hold unclaimed and uncashed employees checks for a specified period. At the end of this period, after the employer has attempted to contact the employee, all monies held must be turned over to the appropriate state s tax division. These wages cannot be erased from an employee s earnings record and must be reported on the employee s annual Form W 2. Employers must maintain records, by state if more than one state is involved, and annually review all employees records for any escheat payments that may be due to the respective states. California has a one year period during which employers are required to hold unclaimed wages before they are turned over to the State tax division. NO FORM W 2 OR FORM 1099 NO DEDUCTION The IRS and the FTB may disallow payroll or other deductions if a timely Form W 2 or Form 1099 is not filed. In addition, the business is also subject to penalties for failure to file information returns. FORM 1099 REPORTING INFORMATION RETURNS Taxpayers may be required to file information returns to report certain types of payments made during the year. For example, Form 1099 MISC, Miscellaneous Income, must be filed to report payments of $600 or more to persons not treated as employees (such as independent contractors) for services performed for a trade or business. Reportable Payments to Corporations The following payments made to corporations generally must be reported on Form 1099 MISC. Medical and health care payments are reported in box 6. Attorneys fees are reported in box 7 (all amounts). Form 1099 K Payments made with a credit card or payment card, and certain other types of payments, including third party network transactions, must now be reported on Form 1099 K by the payment settlement entity and are not subject to reporting on Form 1099 MISC. Confirm that processors correctly categorize the business or company. Businesses should still reconcile Form 1099 K amounts with sales figures reported on the tax return. Withholding requirements also started with the 2013 tax year. Similar to the requirement for other 1099 forms, Form 1099 K imposes a 28% federal withholding when a tax identification number has not been provided to the third party, even if the seller does not meet the Form 1099 K filing threshold (sellers with more than 200 transactions at any income level). Failure to obtain Forms W 9, Request for Taxpayer Identification Number, for payments may be subject to a 28% backup withholding and failure to deposit penalties on amounts that should have been withheld. For doing business as (DBA) names, list the sole proprietor name first and the DBA name second. *Changes from previous year Page 15

17 NEW BACKUP WITHHOLDING RULES When an employer is notified by the IRS that a payee provided an incorrect name and TIN combination, backup withholding (28%) must begin, and the payee should receive either of the two B notices (the IRS term for backup withholding notices) from the IRS. These notices are explained below. The IRS announced interim procedures for a payee to validate a Social Security number. Each payee must contact a local Social Security Administration (SSA) office, request a Social Security number printout, and furnish the employer a copy of the printout. Once the employer receives the printout, backup withholding may stop. The first B notice received by the employer should be sent to the payee with Form W 9, Request for Taxpayer Identification Number and Certificate. If a second B notice is received, the employer should send it to the payee without Form W 9. The second notice informs the payee to contact the IRS or SSA to get the correct name TIN combination. The payee must now certify the name TIN combination. Generally, employers will not need to send a B notice more than twice in a three year period. After sending a second B notice, continue backup withholding until validation of the payee s TIN is received from the SSA or IRS. SALES AND USE TAX RATES INCREASED ON JANUARY 1, 2013 The statewide sales and use tax rates increased one quarter of one percent (.25%) and will apply for four years January 1, 2013, through December 31, In addition to the increased statewide sales and use tax rates of 7.50%, some cities and counties also have applicable district tax rates. FORM W 2 CORRECTIONS When filing Form W 2, and an employee has applied for their Social Security number but has not received it, Form W 2 should be filed by entering APPLIED FOR in the Social Security number field. Enter all zeros ( ) in the Social Security number field, if filing electronically. When the employee receives a Social Security number, file Copy A of Form W 2c, Corrected Wage and Tax Statement, with the Social Security Administration to show the employee s Social Security number. Furnish the employee with forms B, C, and 2 of Form W 2c. Record the employee s name on Form W 2 as it appears on the Social Security card. If the name is not correct on the Form W 2, the employee should request correction and a new Social Security card from the Social Security Administration. Continue to report under the old name until an updated Social Security card is provided. If the Social Security Administration issues the employee a replacement card with a different name or a different number due to change in alien work status, file Form W 2c to correct the information previously reported. Only the most recent Form W 2 must be corrected not the previous years. *Changes from previous year Page 16

18 EMPLOYER PROVIDED CELL PHONES The value of the phone is excluded from an employee s income as a working condition fringe benefit. Personal use of an employer provided cell phone, which is provided primarily for non compensatory business reasons, is excluded as a de minimis fringe benefit. UPCOMING CHANGES California employers will be required to file all income tax withholding returns and reports electronically and remit all payments of withheld income taxes by electronic funds transfer. The new requirements generally apply to employers with ten or more employees effective January 1, 2017, and to all employers effective January 1, Beginning in 2016, companies with 50 or more full time equivalent employees must offer affordable health coverage to full time employees and their dependents. Starting in 2016, companies with 50 or more full timeequivalent employees must use IRS Form 1095 C to report to the IRS and the worker, the 2015 insured date of each full time employee. *Changes from previous year Page 17

19 Appendix A Reconciliation of Form W 3 for 2015/2016 Box 1 Wages, tips, other compensation Same as box 5 of Form W 3, subtracting any 401(k), SIMPLE, IRA contributions, etc. Difference to be reported in box 12A with identifying letter. Box 2 Federal income tax withheld The sum of line 3 of Form 941 from all four quarterly returns. Agree to box 8 of Form 943, Annual Tax Return for Agricultural Employers (line 2 of Form 944). Box 3 Social security wages The sum of line 5a of Form 941 from all four quarterly returns (box 2 of Form 943, line 4a of Form 944). Tip: No Form W 2 for 2015 should have wages above the limit of $118,500. Box 4 Social Security tax withheld Multiply box 3 by 6.2%. Tip: The amount of Social Security tax withheld per employee should not exceed $7, Box 5 Medicare wages and tips The sum of line 5c of Form 941 from all four quarterly returns (box 4 of Form 943, line 4c of Form 944). Box 6 Medicare tax withheld Multiply box 5 by 1.45%. plus 0.9% of wages of $200,000 (box 7 Form 943 box 5D Form 941 box 4d Form 944). Box 7 Social Security tips The sum of line 5b of Form 941 from all four quarterly returns (line 4b of Form 944). Box 16 State wages, tips, etc. Sum of box C of Form DE 9 from all four quarterly returns. Tip: In most cases, the same as box 1. Box 17 State income tax Sum of box G of Form DE 9 from all four quarterly returns. Box 19 Local income tax Sum of box (F3), SDI employee contributions withheld. Enter the abbreviation CASDI. Tip: The amount of SDI withheld per employee should not exceed $ for ($ for 2016) If the total amount reported on Forms W 2 does not agree with reported amounts on the annual and/or quarterly reports, find the error and correct all forms containing the incorrect amounts. Examples: File a separate Form 941 X and Form 944 X for each Form 941 and Form 944 corrected. Do not file with Form 941 or Form 944. To correct Form 941, use Form 941 X. To correct Form 944, use Form 944 X. To correct Forms DE 9 and DE 9C, use Form DE 9ADJ. To correct Form DE 3B, use DE 678 Do not send the State copy of Form W 2 and Form W 2c to the State of California (EDD or FTB). Forms W 2 are not filed with California since wage and withholding information is reported to EDD on the Quarterly Wage and Withholding Report (DE 9C). However, continue to send Forms W 2 and W 2c to employees and to the Social Security Administration. *Changes from previous year Page 18

20 Appendix B Filing Addresses for California Employers Form Form Without Payment Form With Payment 940 Ogden, UT P.O. Box Hartford, CT Ogden, UT P.O. Box Hartford, CT Ogden, UT P.O. Box Hartford, CT Ogden, UT P.O. Box Hartford, CT Ogden, UT P.O. Box Hartford, CT Do not staple, tape, or fold. Federal State W 3 Entire page with Copy A of W 2s. Paper copies; not magnetic media 1096 Entire page with Forms 1099; do not fold DE 9 and DE 9C File together DE 88 Payment only DE 34 Report of new employee(s) (file within 20 days of start date) DE 542 Report of independent contractor(s) (File within 20 days of making payments of $600 or more or entering into a contract for $600 or more) Social Security Administration Data Operations Center Wilkes Barre, PA Certified Mail, use zip code Private delivery service address: Social Security Administration Data Operations Center Attn: W 2 Process 1150 East Mountain Drive Wilkes Barre, PA Department of the Treasury Internal Revenue Service Center Kansas City, MO State of California Employment Development Dept. P.O. Box West Sacramento, CA Employment Development Department P.O. Box , MIC 96 West Sacramento, CA or fax (916) Employment Development Department P.O. Box , MIC 96 Sacramento, CA or fax (916) Not required to be submitted to California EDD. Not required to be submitted to California EDD. State of California Employment Development Dept. P.O. Box Sacramento, CA *Changes from previous year Page 19

21 Appendix C Notice to Employee Labor Code Section *Changes from previous year Page 20

22 *Changes from previous year Page 21