Tech Flex: August, 2017 Volume VIII

Transcription

1 Tech Flex: August, 2017 Volume VIII 1

2 Tech Flex: January, 2018 Volume I Topics Covered In This Issue The topics covered in this issue are: Benefits: Leave: 2018 Medical Mileage Rate Announced by IRS Maryland Sick and Safe Leave Bill Veto Overridden "Safe" Time Law Enacted in Prince George's County Maryland Seattle Amends Paid Sick and Safe Leave Law Payroll: Tax Cuts and Jobs Act Signed into Law IRS Issues Statement on Tax Reform and Form W-4 IRS Releases 2018 Tax Tables Due Date for Furnishing IRS 2017 Forms 1095-C Extended; Transition Relief from Accuracy Penalties Also Extended IRS Releases 2018 Automobile Business Use Mileage Rates Time and Labor: U.S. Department of Labor Announces Change in Intern Test Wave of Class Action Lawsuits Filed under Illinois Biometric Information Privacy Act 2

3 Tech Flex: January 2018 Volume I MEDICAL MILEAGE RATE ANNOUNCED BY IRS Transportation expenses, such as automobile mileage, that qualify as tax deductible medical expenses under Internal Revenue Code Section 213 generally can be paid or reimbursed on a tax-free basis by a health flexible spending arrangement, health reimbursement arrangement, or health savings account if the expense is primarily for, and essential to, medical care. On December 14, 2017, the Internal Revenue Service issued Notice announcing that the standard mileage rate, effective January 1, 2018, for use of an automobile to obtain medical care is 18 cents per mile. This represents an increase of one cent from the 2017 rate of 17 cents per mile. For a copy of Notice please click on the link provided below: MARYLAND SICK AND SAFE LEAVE BILL VETO OVERRIDDEN It was previously May 25, 2017, Maryland Governor Larry Hogan vetoed the Maryland Healthy Working Families Act (Act) that would require employers with 15 or more employees to provide employees with earned sick and safe leave paid at the same wage rate as the employee normally earns. The 2018 Maryland General Assembly legislative session has voted to override Governor Hogan's May 2017 veto of the Act by a vote of in the House, and in the Senate. Under Maryland law overridden vetoes become law and effective 30 days from the date of the final vote to override which is in this instance is 30 days from January 12, Some of the highlights of the Act are as follows: Employers Covered: An employer that employs 15 or more employees must provide an employee with earned sick and safe leave at the same rate as the employee normally earns. An employer that employs 14 or fewer employees must provide an employee with at least unpaid earned sick and safe leave. An employer may not be required to pay a tipped employee more than the applicable minimum wage for earned sick and safe leave. Employees Covered: Employees who regularly work 12 hours or a week for an employer Employees Not Covered: Employees who regularly work less than 12 hours a week for an employer. Construction industry employees who are covered by a collective bargaining agreement that expressly waives the right to leave under this Act. (Such employees do not include janitors, cleaners, security officers, concierges, 3

4 Tech Flex: January 2018 Volume I 4 doorpersons, handypersons, or building superintendents who are entitled to the benefits of the Act). Those working on an as-needed basis in the health or human services industry, as long as they (1) can reject the shift offered by the employer, (2) are not guaranteed work by the employer, and (3) are not employed by a temporary staffing agency. In addition, the following persons are not considered employees and are therefore not entitled to leave under the Act: Independent contractors. Licensed real estate salespersons or brokers, or those affiliated with a licensed broker by written agreement, who are paid solely on commission, and who qualify as independent contractors for federal tax purposes. Those under the age of 18 before the beginning of the year. Agricultural employees processing crops or working for a farmer in the production, harvesting or marketing of product. Temporary staffing agency employees, if the agency does not have day-to-day control over their work assignments and supervision. Employment agency employees providing part-time or temporary services to another person. Accrual and Carryover of Leave: Leave accrues at a rate of at least 1 hour for every 30 hours worked. Exempt employees are assumed to work 40 hours in a workweek, unless they are regularly scheduled for fewer hours, in which case their regularly scheduled hours are used. Tipped employees receiving paid leave must be compensated at the minimum wage rate, which will be $9.25 at the time that the law becomes effective. The employer may choose the 12-month period that constitutes a year for purposes of this Act. The amount of leave that may be earned per year is capped at 40 hours (five 8-hour days). The total amount of leave that may be accrued (including carryover, as explained below) may be capped at 64 hours (eight 8-hour days). The total amount of leave that may be used by an employee may be capped at 64 hours per year. No accrual of leave is required: (1) during a two-week pay period in which the employee worked fewer than 24 hours; (2) during a one-week pay period in which the employee worked fewer than 24 hours in the current and immediately preceding pay period; or (2) during a semi-monthly pay period in which the employee worked fewer than 26 hours. An employer may make available to the employee the full annual allotment of leave at the beginning of the year. If it does not do so, it must permit carryover of the balance of any unused leave to the next year, up to a maximum of 40 hours. 4

5 Tech Flex: January 2018 Volume I 5 Accrual commences upon hire, but an employer may prohibit the use of leave during the initial 106 calendar days of employment. Family Members Covered: Spouse Child, including biological, foster, adopted, or step, as well as one for whom the employee has legal or physical custody or guardianship, or stands in loco parentis (i.e. acts as the parent, regardless of the legal relationship). Parent, including biological, foster, adopted, or step for the employee or the employee s spouse, as well as one who was the legal guardian of or stood in loco parentis to the employee or employee s spouse. Grandparent, including biological, foster, adopted, or step, of the employee. Grandchild, including biological, foster, adopted, or step, of the employee. Sibling, including biological, foster, adopted, or step, of the employee. Reasons to Use Leave Under the Act: To care for or treat the employee s own mental or physical illness, injury, or condition. To obtain preventive medical care for the employee or family member. To care for a family member s mental or physical illness, injury, or condition For maternity or paternity leave. For absences due to domestic violence, sexual assault, or stalking during the employee s relocation or to obtain for the employee or family member: o Medical or mental health attention; o Services from a victim services organization; or o Legal services Notice and Use of Leave: If the need for leave is foreseeable, the employee can be required to provide up to seven days of notice. If it is not foreseeable, the employee must provide notice of the need for such leave as soon as practicable and must comply with the employer s notice requirements for absences, as long as those requirements do not interfere with the ability to use leave. The employer may deny the use of leave if the employee fails to provide the required notice and the absence will cause a disruption. The employee may use leave in the smallest increments used by the employer s payroll system to account for absences or work time, except that the employee may be required to take leave in an increment not exceeding four hours. 5

6 Tech Flex: January 2018 Volume I 6 Verification: An employer can request verification of the appropriate use of leave if an employee uses more than two consecutive scheduled shifts of leave. Verification may also be required if the employee uses leave between the 107th through 120th calendar days after beginning employment, on terms that the employee agreed to at the time of hire. If the employee fails to provide the verification, subsequent requests to take leave for the same reason may be denied. Employer s Notice and Recordkeeping Requirements: When wages are paid to an employee, the employer must provide in writing by any reasonable method a statement regarding the amount of earned sick and safe leave that is available for use by the employee. This requirement may be satisfied by providing an online system through which an employee may ascertain the balance of the employee s available earned and sick and safe leave. An employer must also provide notice to employees that they are entitled to leave. This notice must include the following: A statement of how leave is accrued. The permitted uses of leave. A statement (1) that the employer must not take adverse action because an employee exercises rights under this Act, and (2) that the employee may not, in bad faith, make a complaint, bring an action, or testify in an action. Information about the employee s right to report alleged violations to the Commissioner of the Maryland Department of Licensing and Labor Regulation (DLLR) or to bring a civil action against the employer. The DLLR will be creating a poster and model notice, as well as a model policy. We will alert you when the model documents are available. Employers must also keep for at least three years records of the leave accrued and used by each employee. Failure to keep these records creates a rebuttable presumption that the employer has violated the Act. These records must be available for inspection by the DLLR. Act Impact on Employer s Existing Policy: An employer may continue with a paid leave policy that (1) meets the minimum accrual and usage requirements of this law, or (2) does not reduce compensation for an absence due to sick or safe leave. The paid leave may include vacation, sick, short-term disability benefits, floating holidays, parental leave, or any other paid time off that may be used for leave purposes. 6

7 Tech Flex: January 2018 Volume I 7 Act Impact on County Laws: The Act states: (1) Except as provided in paragraph (2) of this subsection, this subsection preempts the authority of a local jurisdiction to enact a law on or after January 1, 2017, that regulates sick and safe leave provided by an employer other than a local jurisdiction. (2) This subsection does not preempt a local jurisdiction from amending a law that was enacted before January 1, 2017, and regulates sick and safe leave provided by an employer. Montgomery County: Since the Montgomery County Earned Sick and Safe Leave Law which was effective October 1, 2016 was enacted prior to January 1, 2017, employers in Montgomery County must comply with both the state and county law. Prince George s County: As the Prince George s Safe Time law was enacted on December 12, 2017 and therefore after January 1, 2017, the Prince George s law is preempted by the new state Act. For a copy of the Act please click on the link provided below. "SAFE" TIME LAW ENACTED IN PRINCE GEORGE'S COUNTY MARYLAND Prince George s County, Maryland on December 12, 2017, enacted Bill Number CB , which mandates that covered employees be allowed to accrue and use paid leave for absences connected to domestic violence, sexual assault, or stalking. However, as a result of the enactment of the Maryland Healthy Working Families Act (by override of Governor Hogan s veto), the Prince George s law is preempted and will not take effect. The law was scheduled to take effect 45 calendar days after the Maryland General Assembly adjourns in Please find below some of the highlights of Prince George s bill that is now null and void. Coverage The law will apply to employers operating and doing business in Prince George s County that employ 15 or more persons in the county. Any person an employer permits or instructs to work or be present in the county is considered a covered employee. Although the law does not exempt unionized workforces, the definition of employee contains numerous exceptions, e.g., an individual who performs work under a contract of hire that is determined not to be covered employment under state unemployment law, a real estate salesperson, agricultural workers, and individuals under 18. Employees can use leave for themselves or to care for or assist a family member, which includes a child, grandchild, grandparent, parent, sibling, or spouse. 7

8 Tech Flex: January 2018 Volume I 8 Accrual and Carryover Employees must accrue at least one leave hour for every 30 hours worked in the county. For employees who are overtime-exempt under the Fair Labor Standards Act (FLSA), accrual is based on a 40-hour workweek or the number of hours in the employee s normal workweek, whichever is less. An employer may cap annual accrual at 40 hours per calendar year. At the end of each calendar year, accrued but unused leave must carry over to the next calendar year, but employers may cap carryover at 40 hours. The law allows an employer to award the full amount of leave an employee would earn during a year instead of accruing it, but the law is silent as to whether frontloading leave will eliminate the need for carryover. Requesting, Using, & Documenting Leave If an employee s absence is due to domestic violence, sexual assault, or stalking committed against the employee or the employee s family member, leave can be used to obtain medical attention needed to recover from a physical or psychological injury, to obtain services from a victim services organization, or to obtain legal services, including preparing for or participating in a civil or criminal proceeding. Additionally, leave may be used during the time an employee temporarily relocates. Employers may cap annual use at 64 hours. Employees must request leave as soon as practicable, must comply with their employer s reasonable notice procedures, and must notify their employer of the absence s anticipated duration. An employer may deny a leave request if an employee both fails to provide required notice and the absence will cause a disruption to the employer. However, employers cannot require employees to disclose details of the mental or physical illness, injury, or condition of the employee or family member when requesting leave. If an employee uses more than three consecutive days of leave, an employer may require the employee to provide reasonable documentation to verify leave was used for a covered purpose. The requested certification may not, however, require an employee to provide any information that would violate the federal Social Security Act or Health Insurance Portability and Accountability Act (HIPAA). Leave may be taken in the smallest increment an employer s payroll system uses to account for other absences, but an employee cannot be required to take leave in an increment of more than one hour. An employer and employee can mutually agree that the employee may work additional hours or trade shifts with another employee during a pay period to make up the work hours the employee missed for which leave could have been used. However, an employer cannot require an employee to search for or find an individual to take the employee s place during leave. Payment for Leave Use Leave is paid at the same rate and with the same benefits the employee normally earns. Tipped employees must be paid at least the county minimum wage for each leave hour used. End of Employment / Reemployment Issues The Prince George s County law does not address whether an employee must be paid the value of accrued but unused leave when employment ends. Nonetheless, it does require that, if an employee is rehired to work in the county within 12 months after leaving the employer, any previously accrued but unused leave must be reinstated. 8

9 Tech Flex: January 2018 Volume I 9 Employer Notice & Recordkeeping Obligations Employers must notify employees that they are entitled to leave under the law. The notice must include: A statement of how leave is accrued; The permitted reasons for which leave can be used; A statement that the employer cannot retaliate against an employee for exercising protected rights under the law; and Information about an employee s right to file a complaint with the Human Relations Commission for a violation of the law. Employers may notify employees by using a to-be-developed model county notice or another notice that contains the same information. Employers may conspicuously display the notice at work locations in the county, include the notice in an employee handbook or in other written guidance distributed to employees, or distribute the notice to each employee at the time of hire. Additionally, each time wages are paid, employers must provide employees with a written statement of their available leave. Employers must keep a record of leave accrued and used by each employee for at least three years. Prohibited Actions A person cannot obstruct or prevent enforcement or compliance with the law. Additionally, a person cannot retaliate against any person for lawfully opposing any violation of the law or filing a complaint, testifying, assisting, or participating in any manner in an investigation, proceeding, or hearing under the law. Covered employees who did not receive leave to which they were entitled can file a complaint with the Prince George s County Human Relations Commission. It is unclear whether the same fines, damages, and injunctive the relief the Commission may award under the county s fair employment practices law will apply to the paid safe time law. It is also unclear whether the statute of limitations will be the same. 9

10 Tech Flex: January 2018 Volume I 10 SEATTLE AMENDS PAID SICK AND SAFE LEAVE LAW The Seattle City Council has voted to amend the Seattle Paid Sick and Safe Time (PSST) law in order to incorporate the more generous provisions of the voter-passed Washington State Initiative 1433 which established statewide paid sick leave effective January 1, The Seattle PSST effective January 1, 2012 provides that employers of 4 or more employees must provide PSST to employees in amount that based on the size of the employer as follows: Employer Size (Fulltime employees - FTEs) Up to 49 FTEs FTEs 250+ FTEs Accrual of PSST Per Hours Worked 1 hour per 40 hours worked 1 hour per 40 hours worked 1 hours per 30 hours worked Carryover of unused PSST Per Year 40 hours 56 hours 72 hours (108 hours for employers with a PTO Policy) Sick time may be used for a physical or mental health condition, including a medical appointment. Safe time may be used for reasons related to domestic violence, sexual assault, stalking or public health issues. Safe time can also be used to care for a household member. Amended PSST Some of the changes effective January 1, 2018 to the Seattle PSST to conform with Washington Initiative 1433 are as follows: Employer size: Current: PSST applies to employers with at least 4 employees. Amended: PSST will apply to employers of one or more employees. Definition of Family Member: Current: Child (minor or dependent), Spouse, Registered Domestic Partner, Parent, Parent-in-law, Grandparent. Amended: All of the above plus Child (of any age), Sibling and Grandchild. Use of PSST: Current: Caps on use permitted. Amended: Caps on use NOT permitted. 10

11 Tech Flex: January 2018 Volume I 11 Waiting Period: Current: 180 calendar days from start of employment. Amended: 90 calendar days from start of employment. Breaks in Service: Current: PSST must be reinstated after a 7 month break in service for same employer. Amended: PSST must be reinstated after a 12 month break in service for same employer. Increments of Use (Hourly employees) Current: Employees can use PSST in hourly increments or, if feasible by employer s payroll system, increments rounding to nearest 15 minutes. Amended: Employees can use PSST in hourly increments or the smallest increment in which compensation is tracked. It is important to note that the amended PSST made no change to the following provision: Effective April 1, 2016, employers shall give employees written notice of the employer's policy and procedure for meeting the requirements of this Chapter including but not limited to the employer's choice of benefit year; tier size; rate of accrual, use and carry-over of paid sick and paid safe time hours; manner of providing employees with an updated amount of available paid sick and safe time hours each time wages are paid; and notification requirements for absences and requesting leave. The Agency shall create and distribute a model policy that employers may use for complying with this subsection C. 11

12 Tech Flex: January 2018 Volume I 12 TAX CUTS AND JOBS ACT SIGNED INTO LAW H.R. 1, the Tax Cuts and Jobs Act (the Act), was passed by both the House and Senate on December 20, 2017, and was signed into law on December 22. The Act includes several significant changes that are relevant to employers for payroll, employment tax and employee benefits purposes, and are generally effective on January 1, These provisions, as well as expected transition measures, are explained below. Immediate Impact to Income and Employment Taxes Although new federal income tax tables and rates will take effect on January 1, there may be a delay in release of withholding tax guidance from the U.S. Treasury Department for employers. In the meantime, the Internal Revenue Service (IRS) has explained that employers may use existing (2017) withholding tax tables and guidance until new guidance is released. According to a notice dated December 13, 2017, the IRS anticipates issuing the initial withholding guidance (Notice 1036) in January reflecting the new legislation, which would allow taxpayers to begin seeing the benefits of the change as early as February. The IRS will be working closely with the nation's payroll and tax professional community during this process. Note: The IRS has now released 2018 Withholding tables. Please see article below titled IRS Releases 2018 Tax Tables. The Act authorizes the Treasury Department to permit employers to apply existing wage withholding rules and calculations throughout 2018, although this seems unlikely. According to the Act and the conference report: the Secretary [of the Treasury] may administer the withholding rules under Section 3402 for taxable years beginning before January 1, 2019, without regard to the amendments made under this provision. Thus, at the Secretary s discretion, wage withholding rules may remain the same as under present law for However, to avoid adversely affecting taxpayers, Treasury is likely to issue guidance as soon as possible, to align employer wage withholding calculations with the new income tax rates which will take effect on January 1, Supplemental Wage Withholding Rate Decreased When an employee receives $1 million or less of supplemental wages during the calendar year, and such wages are either paid separately from regular wages or identified separately from regular wages (if made in the same payment), the flat percentage method of withholding on such wages during the 2018 calendar year is 22%, decreased from 25% in If an employee receives in excess of $1 million of supplemental wages during the calendar year, and the supplemental wages are either paid separately from regular wages or identified separately from regular wages (if made in the same payment), the amount of supplemental wages the employee receives in excess of $1 million is subject to withholding at a rate of 37%, decreased from 39.6% in Form W-4 Expected to Be Revised The Act repeals the deduction for personal exemptions, which for 2017 is $4,050 per individual (i.e., employee, spouse, dependents). The number of personal exemptions is currently a key factor in withholding calculations. Employees establish withholding allowances on Forms W-4 based in part on the number of personal exemptions that they expect to report on their income tax returns. Withholding allowances may also be claimed 12

13 Tech Flex: January 2018 Volume I 13 based on estimated itemized deductions, such as for mortgage interest, so the concept of withholding allowances may not be entirely eliminated. It seems likely that Forms W-4 may need to be substantially revised and reissued by the IRS, which could take a number of weeks. In the meantime, the IRS expects to issue guidance permitting employers to continue relying on existing Forms W-4. It is also anticipated that the IRS will permit a reasonable transition period when the revised Form W-4 is issued. Some employees may ask questions about the effect of the Act or may submit updated Forms W-4 to modify their withholding allowances for Employers should be prepared to accept updated Forms W-4 from employees, but may wish to advise employees that a revised Form W-4 will likely be issued by the IRS later in 2018, and that the employee may need to complete the revised form at that time. State Forms W-4 May Also Change Many states maintain tax laws that are closely aligned with federal law, and many states permit employers to rely on the federal Form W-4 for state income tax withholding purposes. The elimination of personal exemptions in federal law may cause several states to revise their equivalent withholding allowances forms and/or issue new guidance to employers. ADP has been in contact with a number of state taxing authorities; however, state decisions will likely come after the U.S. Treasury guidance and any revisions to the IRS Form W-4. Changes to Certain Employee Benefits The Act makes several significant changes affecting employee benefits, generally effective on January 1, These provisions are summarized below. Employers should review the relevant law in detail and consult with appropriate legal and tax professionals before taking any action. Qualified Transportation Fringe Benefits Currently, employers are able to offer qualified transportation fringe benefits, such as mass transit passes and qualified parking, on a pretax basis (i.e., excludable from an employee s taxable income and excluded from wages for employment tax purposes). For 2017, the maximum monthly exclusion for qualified parking, and for commuter highway vehicle transportation and transit passes is $255. Employers may generally deduct these expenses. Effective for tax years beginning after December 31, 2017, the Act repeals the employer deduction for expenses related to qualified transportation fringe benefits, or for any expenses incurred for providing, paying, or reimbursing any employee s expenses for travel between home and work except expenses deemed necessary for ensuring the safety of an employee. The Act is silent as to the tax treatment of transportation fringe benefits to employees, so qualified transportation fringe benefits will remain tax exempt to employees, and such benefits can still be offered to employees on a pretax basis (i.e., excluded from income for FIT, Social Security/Medicare, and FUTA purposes.) Qualified Bicycle Commuting Expenses In 2017, qualified bicycle commuting reimbursements of up to $20 per month could be offered as a tax-free benefit (i.e., excludable from an employee s taxable income and excluded from wages for employment tax purposes), for employees who regularly use a bicycle to travel to a place of employment, and during which the employee does not receive transportation via a commuter highway vehicle, a transit pass, or qualified parking from an employer. 13

14 Tech Flex: January 2018 Volume I 14 The Act repeals this provision, effective for taxable years beginning after 2017 and before For these years, qualified bicycle commuting expenses can no longer be offered on a pretax basis to employees, but employers can continue to deduct expenses for bicycle commuting expenses paid or incurred after December 31, 2017, and before January 1, Employee Achievement Awards Currently, an employer s deduction for the cost of an employee achievement award is limited to a certain amount. Employee achievement awards that are deductible by an employer are excludable from an employee s gross income. Amounts that are excludable from gross income under Section 74(c) for income tax purposes are also excluded from wages for employment tax purposes. An employee achievement award is an item of tangible personal property given to an employee in recognition of either length of service or safety achievement, and presented as part of a meaningful presentation. The Act adds a definition of tangible personal property that may be considered a deductible employee achievement award. It provides that tangible personal property shall not include cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring the right to select from a limited array of such items pre-approved by the employer), or vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. This provision is effective for amounts paid or incurred after However, this definition is already considered to be in effect under proposed regulation , so the Act codifies the definition into statute. The Joint Committee on Taxation noted that No inference is intended that this is a change from present law and guidance. Business Entertainment, Amusement, and Recreational Activities Currently, employers may deduct expenses for entertainment, amusement, recreational activities, and membership dues with respect to any club organized for business, pleasure, recreation or any other social purpose, if the expenses relate to the conduct of the taxpayer s trade or business. The deduction is generally limited to 50% of otherwise deductible expenses. Beginning in 2018, the Act eliminates the employer s deduction for entertainment, amusement, recreational activities or membership dues relating to a business, pleasure, recreation or other social purpose, or any facility used in connection with any of the above items. Employers may still deduct 50% of otherwise deductible food and beverage expenses (e.g., meals consumed by employees on work travel). For amounts incurred and paid after December 31, 2017 and through December 31, 2025, the Act expands the 50% expense limitation to employer expenses associated with providing food and beverages to employees through an on-premises eating facility that meets requirements for de minimis fringes, and for the convenience of the employer. No deduction will be permitted after Qualified Moving Expense Reimbursements Currently, qualified moving expense reimbursements are excluded from an employee s gross income for income tax purposes, and are excluded from wages for employment tax purposes. Qualified moving expense reimbursements are defined as any amount received directly or indirectly from an employer as payment for (or reimbursement of) expenses which would be deductible as moving expenses under Section 217, if directly paid or incurred by the employee. 14

15 Tech Flex: January 2018 Volume I 15 The Act repeals the exclusion from gross income and wages for qualified moving expense reimbursements, except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order. This provision is effective for tax years beginning after December 31, Elimination of the ACA Individual Mandate (aka Penalty for Failing to Maintain Minimum Essential Coverage) The Affordable Care Act (ACA) requires that individuals maintain health coverage that provides at least minimum essential coverage (MEC) or be subject to a penalty (commonly referred to as the individual mandate provision). The penalty generally is imposed for any month that an individual does not have MEC unless the individual qualifies for an exemption for the month. Currently, the annual penalty amount is the greater of a flat dollar amount (currently $695 per adult) or a percentage (currently 2.5%) of household income over a threshold amount. The Act reduces the amount of the individual responsibility penalty to zero, effective in The individual mandate remains in effect through The elimination of the ACA individual mandate penalty has no effect on the ACA employer mandate (Section 4980H of the Internal Revenue Code (Code)). Applicable Large Employers (generally those with 50 or more full-time employees and full-time equivalent employees in the prior year), continue to be subject to the ACA coverage, reporting, and other applicable obligations. Treatment of Private Company Stock Options Effective January 1, a new subsection (i) of Code Section 83 is established for the deferral of broad-based, private company stock options and restricted stock units from wages subject to federal income tax and tax withholding of rank-and-file employees. The provision establishes new reporting requirements, which will be defined through regulations. New Tax Credit for Paid Family and Medical Leave For taxable years beginning after January 1, 2018, eligible employers may claim a general business credit equal to 12.5% of wages paid to qualifying employees during any period in which such employees are on paid family and medical leave, if the rate of payment under the program is at least 50% of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%. For example, if an employee on FMLA leave is paid 60% of their normal wages, the credit would increase to 15% of the wage amount (12.5% plus (10% x 0.25 = 2.5%), which equals 15%). An employee paid 100% of their normal wage amount would generate a credit equal to 25% of the wage amount (12.5% plus (50% x 0.25 = 12.5%), which equals 25%). The maximum amount of family and medical leave that may be taken into account with respect to any employee for any year is 12 weeks. An eligible employer is one who has in place a written policy that allows all qualifying full-time employees not less than two weeks of annual paid family and medical leave, and who allows all less-than-full-time qualifying employees a commensurate amount of leave on a pro rata basis. A qualifying employee is any employee who has been employed for one year or more, and who, for the preceding year, had compensation not in excess of 60 percent of the 15

16 Tech Flex: January 2018 Volume I 16 compensation threshold for highly compensated employees (i.e., $72,000 for 2018 (60% of $120,000)). If an employer provides paid leave as vacation leave, personal leave, or other medical or sick leave, this paid leave would not be considered to be family and medical leave. Leave paid for or required by a state or local government is also not taken into account. There are many details to be determined through regulations, which are likely to take several months to complete. Employers who wish to take advantage of the new tax credit should consult with their legal and tax advisors. This tax credit would not apply to wages paid in taxable years beginning after IRS ISSUES STATEMENT ON TAX REFORM AND FORM W-4 As noted above, the Tax Cuts and Jobs Act (the Act), was passed by both the House and Senate on December 20, 2017, and was signed into law on December 22. The Act includes several significant changes that are relevant to employers for payroll, employment tax, and employee benefits purposes. The changes were generally effective on January 1, The Act repeals the deduction for personal exemptions, which for 2017 was $4,050 per individual (i.e., employee, spouse, dependents). The number of personal exemptions has been a key factor in withholding calculations. Employees establish withholding allowances on Forms W-4, based in part on the number of personal exemptions that they expect to report on their income tax returns. A pressing question was whether employees would be required to submit a new Form W- 4 as a result of the elimination of personal exemptions under the Act. On December 26, 2017, the Internal Revenue Service (IRS) made a statement indicating that employees would not need to submit a new Form W-4. IRS Statement: The IRS is working to develop withholding guidance to implement the tax reform bill signed into law on December 22. We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February. The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time. Use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February. In the meantime, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems. For a copy of the IRS announcement, click on the link provided below. 16

17 Tech Flex: January 2018 Volume I 17 IRS RELEASES 2018 TAX TABLES On January 11, 2018, the Internal Revenue Service (IRS) issued Notice 1036, the Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding to implement provisions included in the recently enacted Tax Cuts and Jobs Act (the Act), which was signed into law on December 22, The Act includes several significant changes that are relevant to employers for payroll, employment tax and employee benefits purposes that are generally effective on January 1, For more information on the Act, please see the two previous articles. The 2018 withholding information shows the new rates for employers to use during According to Notice 1036, employers should begin using the 2018 withholding tables as soon as possible, but not later than February 15, Employers should continue to use the 2017 withholding tables until implementing the 2018 withholding tables. In a statement accompanying Notice 1036, the IRS stated as follows: Many employees will begin to see increases in their paychecks to reflect the new law in February. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid generally weekly, biweekly or monthly. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This will minimize the burden on taxpayers and employers. Employees do not have to do anything at this time. The new law makes a number of changes for 2018 that affect individual taxpayers. The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets. For people with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding. The revisions are also aimed at avoiding overand under-withholding of tax as much as possible. To help people determine their withholding, the IRS is revising the withholding tax calculator on IRS.gov. The IRS anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once it is released. The IRS is also working on revising the Form W-4. Form W-4 and the revised calculator will reflect additional changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions. The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job. Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4. In addition, the IRS will help educate taxpayers about the new withholding guidelines and the calculator. The effort will be designed to help workers ensure that they are not having too much or too little withholding taken out of their pay. 17

18 Tech Flex: January 2018 Volume I 18 For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and share information on changes in the new tax law that impact withholding. Important Clarification on Withholding Regarding Supplemental Wages It is important to note that Notice 1036 clarified that when an employee receives $1 million or less of supplemental wages during the calendar year, and such wages are either paid separately from regular wages or identified separately from regular wages (if made in the same payment), the flat percentage method of withholding on such wages during the 2018 calendar year is 22%, decreased from 25% in If an employee receives in excess of $1 million of supplemental wages during the calendar year, and the supplemental wages are either paid separately from regular wages or identified separately from regular wages (if made in the same payment), the amount of supplemental wages the employee receives in excess of $1 million is subject to withholding at a rate of 37%, decreased from 39.6% in The IRS defines supplemental wages in part as follows: Supplemental wages are wage payments to an employee that aren't regular wages. They include, but aren't limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. For a copy of Notice 1036 please click on the link provided below. DUE DATE FOR FURNISHING IRS 2017 FORMS 1095-C EXTENDED; TRANSITION RELIEF FROM ACCURACY PENALTIES ALSO EXTENDED The Internal Revenue Service (IRS) announced on December 22, 2017, that it has extended the 2018 due date for Applicable Large Employers (ALEs) to furnish 2017 health coverage information forms to employees. ALEs now have until March 2, 2018 to provide Forms 1095-C to individuals, which is a 30-day extension from the original due date of January 31, No extension was provided for filing the forms with the IRS. The IRS also extended transition relief from penalties under Internal Revenue Code (IRC) sections 6721 and 6722 to ALEs that can demonstrate that they made good-faith efforts to comply with the Form 1095-C reporting requirements under IRC sections 6055 and 6056 for This good faith relief applies both for furnishing to individuals and for filing with the IRS, and for incorrect or incomplete information. Background IRC section 6056 requires ALEs to report to the IRS whether they offer their full-time employees and their employees' dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan. An ALE is an employer that employed (counting all employees within a controlled group) an average of at least 50 full-time employees (including full-time equivalent employees) during the 18

19 Tech Flex: January 2018 Volume I 19 preceding calendar year. Employees are considered full-time in any month that they are credited with at least 30 hours of service per week, on average, or 130 hours of service in the month. IRC section 6055 requires plan sponsors of self-insured health coverage to report to the IRS information about the enrolled individuals months of coverage. ALEs must furnish Forms 1095-C to full-time employees and/or covered individuals regarding the health care coverage offered to them. Individuals may use this information, in part, to determine whether, for each month, they may claim the premium tax credit on their individual income tax returns. Form 1095-C is to be furnished and filed for each employee who was full-time for one or more months of a year, and includes details of any health care coverage offered to the employee, reported on a monthly basis. For self-insured plans, Form 1095-C must also be provided to any individuals who enrolled in the self-insured MEC, which may include nonfull-time employees and any covered spouses and dependents. (One Form 1095-C may be furnished to the employee; i.e., it is not necessary to provide a form to each covered spouse/dependent.) Extended Deadline to Furnish 2017 Forms 1095-C to Employees IRS Notice announced an extension of the deadline to furnish 2017 Forms 1095-C to employees until March 2, 2018, which is a 30-day extension. However, employers are encouraged to furnish 2017 statements as soon as they are able. The 30- day extension for 2017 forms 1095-C is automatic, so ALEs do not have to request extensions, and the IRS will not respond to extension requests for The deadline for filing 2017 information returns with the IRS is not extended, and remains February 28, 2018 for paper filers, or April 2, 2018 for electronic filers. Electronic filing is required for parties filing 250 or more forms. Employers may wish to notify affected employees of any delay in furnishing Forms C, and offer general guidance to assist them in preparing their U.S. Individual Income Tax Return (IRS Form 1040 or 1040A). Most employees will not need the Form 1095-C to prepare their individual income tax return because they will know whether they had coverage for a month and can simply check a box on their IRS Form 1040 to attest whether they and any dependents had MEC throughout the year. Taxpayers may also rely on other information received from their employer or coverage provider for purposes of filing their returns, including determining eligibility for the premium tax credit and confirming that they had MEC. Taxpayers do not need to wait to receive Form 1095-C before filing their returns. Good-Faith Transition Relief from Penalties for Incorrect or Incomplete Information The IRS also extended transition relief from penalties under IRC sections 6721 and 6722 to ALEs that can demonstrate that they made good-faith efforts to comply with the Form 1095-C reporting requirements under IRC sections 6055 and 6056 for 2017; both for furnishing to individuals and for filing with the IRS, and for both incorrect or incomplete information. IRC section 6721 imposes a penalty for failing to timely file an information return or for filing an incorrect or incomplete information return. IRC section 6722 imposes a penalty for failing to timely furnish an information statement or furnishing an incorrect or incomplete information statement. 19

20 Tech Flex: January 2018 Volume I 20 The IRS previously provided transition relief from penalties under IRC sections 6721 and 6722 to ALEs that could show that they made good-faith efforts to comply with the ACA information reporting requirements for 2015 and This relief applied only to incorrect and incomplete information, and not to the failure to furnish or failure to file Forms C/1095-C. Notice extends this relief to 2017 Forms 1094-C/1095-C. ALEs will be eligible for relief from penalties under IRC sections 6721 and 6722 if they can show that they made good-faith efforts to comply with the reporting requirements, for incorrect or incomplete information, including missing and inaccurate Social Security numbers and dates of birth, as well as other required information. No relief is provided for failure to file or to furnish a statement by the due dates (as extended by Notice ). In determining good faith, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting the required information to the IRS and furnishing it to employees and covered individuals, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the IRS or testing its ability to transmit information to the IRS. The IRS will also take into account the extent to which the employer is taking steps to ensure that it will be able to comply with the reporting requirements for The extension of time for furnishing Forms 1095-C is only for 2017 and has no effect on future years. Treasury and the IRS do not anticipate extending transition relief to reporting for For more information, see in IRS Notice at 20

21 Tech Flex: January 2018 Volume I 21 IRS RELEASES 2018 AUTOMOBILE BUSINESS USE MILEAGE RATES On December 14, 2017, the Internal Revenue Service issued via Notice the 2018 the optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, and moving purposes. As of January 1, 2018, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be: 54.5 cents per mile for business miles driven; 18 cents per mile driven for moving purposes; and 14 cents per mile driven in service to a charitable organization versus 2017 Mileage Rates: Type of Mileage Driven Business Miles 2018 Rate 2017 Rate Difference 54.5 cents per mile 53.5 cents per mile +1.0 cents per mile Moving Miles 18 cents per mile 17 cents per mile +1.0 cents per mile Service of Charitable 14 cents per mile 14 cents per mile No change The standard mileage rates for business and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. The mileage rate for charitable miles is set by statute and remains at 14 cents per mile. For a copy of Notice please click on the link provided below: U.S. DEPARTMENT OF LABOR ANNOUNCES CHANGE IN INTERN TEST On January 5, 2018, the United State Department of Labor ( DOL ) announced that it would no longer adhere to the six-factor test originally adopted in 2010 to determine whether or not students can properly be considered interns under the Fair Labor Standards Act ( FLSA ). Many federal courts, including the Second and Ninth Circuit Courts of Appeal had previously rejected the DOL s six-factor test, claiming that the test was too rigid and failed to properly consider the unique circumstances of each individual workplace relationship. One of the most controversial aspects of the former test was the element that the employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded. This factor was considered by many to be very difficult for employers to meet. The DOL announced that it will now base determinations whether interns should be considered employees under the FLSA upon the primary beneficiary test, which has been adopted by many federal courts. According to a Fact Sheet issued by the DOL, the elements of the primary beneficiary test are as follows: 21