TO: ALL BUSINESS CLIENTS DATE: October 27, 2016 FROM: RE: KATZ, NANNIS + SOLOMON, P.C. YEAR END PAYROLL AND RELATED ISSUES As the end of the year approaches, we would like to remind you of certain record keeping requirements which we are happy to assist you with in any manner. Forms 1099 Form 1099-MISC is required to be sent to each individual, partnership or other nonincorporated business that you paid $600 or more, cumulatively, in the current calendar year. This includes payments for services, rents, royalties, fees and commissions and subcontractors. It also includes payments totaling $600 or more, cumulatively, to legal, medical and healthcare providers, whether incorporated or not, made in the course of your trade or business. These forms are required to be mailed to both the recipients and to the government by January 31, 2017. Other types of 1099 s may be required, depending on your business. Form 1099-INT is required to be sent to all recipients of interest payments of $10 or more, except for corporations, financial institutions, brokers, IRA s, nominees and tax-exempt organizations. These forms are to be mailed to the recipient by January 31, 2017 and to the government by February 28, 2017 We will be pleased to assist you in their preparation. Loans to or from Corporate Officers, Shareholders and Employees Federal tax regulations require documentation of the following information for loans between a corporation and its officers, shareholders and/or employees. There must be a written note for each loan. It must state the interest rate (must be competitive), payment terms and the due date. The interest must be paid when due and a 1099- INT should be issued. There must be documentation of the transaction with respect 1
to officers and/or shareholders recorded in the Minutes of the corporation s meeting of the board of directors. Fringe Benefits The value of certain fringe benefits is required to be included in the gross wages of the recipient and reported on their W-2. Where applicable, social security and Medicare taxes on fringe benefits must be paid with your payroll tax deposit and reported as such on Form 941. The fringe benefit is also to be included on Form 941 as gross wages. The most common reportable fringe benefits include personal use of a company provided vehicle, shareholder s health insurance for S-Corporations (not subject to social security, Medicare or unemployment taxes), disability insurance, and group term-life insurance over $50,000. In addition, employer paid dependent care benefits are reported in box 10 of form W-2, and excludable moving expense reimbursements and elective deferrals to 401(k) and similar plans should be reported in box 12. Please contact our office to review the tax reporting for your program. Auto Use: Valuation and Reporting In an effort to facilitate compilation of the data needed to calculate the value of the personal use of a company vehicle, we have enclosed a sample worksheet - the Company Vehicle Mileage Statement. Please have this completed for each vehicle the company owns or leases. The worksheet also summarizes the required information to be reported on the Company s tax return for all vehicles. If you give a standard expense allowance to your employees, and do not require them to report business usage to the company and repay the amount that was not used for business purposes, the allowance is taxable compensation. This standard expense allowance should be reported to your payroll company and included on the employee's W-2, subject to withholdings. We suggest that you apply the IRS sanctioned method of using November 1, 2015 through October 31, 2016 as your reporting period. This method is outlined in the Company Vehicle Mileage Statement worksheet provided. If you use a payroll service, the fringe benefit must be calculated in time for you to call it in with your 2016 payroll. Please contact us when the data has been collected and we will calculate the fringe benefit inclusion amount. Employer Provided Health Care Employers who have 250 or more W-2 s are required to report the cost of health insurance coverage under an employer-sponsored group health plan on the employee s W-2. The amount will be included in Form W-2, using code DD. Under the health care plan, there is a penalty for those taxpayers who are not covered by health insurance. This reporting requirement will eventually assist the IRS in 2
verifying that taxpayers have coverage. Your health care benefits will not be taxed any differently for the 2016 tax year than in 2015. Restricted Stock and/or Stock Options Many of our clients are issuing restricted stock and/or stock options to their employees, board members and/or consultants as part of their compensation package. The area is complex and beyond the scope of a complete explanation in a condensed manner. The issuance and/or exercise of these may trigger tax ramifications to the Company and the employee, board member or consultant depending on the terms of the agreement and the valuation of the underlying stock. We recommend a discussion with one of our tax professionals if you are utilizing restricted stock or options to determine if any W-2, Form 1099 and/or Form 3921 reporting is required in 2016. Additional Information All new employees are required to fill out form W-4, Employee s Withholding Allowance Certificate and form I-9, Employment Eligibility Verification The maximum taxable social security wage base for 2016 is $118,500. The Medicare wage base has remained unchanged with no limit, and the tax rates for social security and Medicare remain at 6.2% and 1.45%, respectively. An employer is responsible for withholding 0.9% Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. Should this be an issue and you require further guidance, please contact our office. Household employers must file Form W-3 with their 2016 Form W-2 even if they have only one employee. The checklist and forms included in the following three pages should be used to assist you in the decision making process. If you want us to calculate the taxable auto fringe amounts for you, please fill out the checklist and forms and return them to us. Please complete the attached questionnaires for our records and return them to us as soon as possible, but no later than November 30, 2016. You may email the questionnaires to Lynne Bolli at lbolli@knscpa.com or mail them to her attention. We would appreciate your response, even if you do not have any vehicles partially utilized by employees for personal purposes. If you respond affirmatively, we will contact you to discuss the requirements, in detail. 3
KATZ, NANNIS + SOLOMON, P.C. 2016 TAXABLE FRINGE BENEFIT QUESTIONNAIRE Company Name A. VEHICLES 1. Does your Company own or lease any vehicles? 2. If the answer is yes, please complete the questions below and the additional vehicle information worksheet attached. If the answer to question #1 is no, you do not need to complete the rest of Section A - Vehicles. 3. Are all of the vehicles stored on company grounds and only used by the employees for business purposes under a written plan barring personal use? 4. Are the employees allowed to use the vehicles for personal use, even if only for commuting? 5. Are the employees required to commute to and from work in the vehicle but not allowed to use the vehicles for any other personal use? 6. Are the employees who use company vehicles required to reimburse the company for the personal use portion? B. LIFE INSURANCE 1. Does your company provide group term life insurance coverage exceeding $50,000 to any employees? If yes, please check with the insurance provider to obtain the proper amount to include in the employee W-2. 2. Does the company provide individual life insurance coverage to one or more employees? 3. Is the company the beneficiary of the life insurance? Yes No 4. Does the employee have the right to change the beneficiary designation from the company to someone else? 4
If your company is the owner and beneficiary of the life insurance policy, do not include the cost of the policy on the employee's W-2. C. DISABILITY INSURANCE 1. Does your Company provide disability insurance coverage to any employees? 2. Is the company providing the benefit on an after-tax basis? If yes, please check with the insurance provider to obtain the proper amount to include in the employee W-2. D. HEALTH INSURANCE 1. Does your Company provide health insurance coverage to any employees? 2. Does your Company pay any part of the premium? If yes, for employers who file less than 250 W-2 s, the requirement to report the cost of health insurance coverage under an employer-sponsored group health plan on the employee s W-2 is optional, but may become mandatory in the future. E. RESTRICTED STOCK OR STOCK OPTIONS 1. Did your Company grant any restricted stock, incentive stock options or non-qualifying stock options during 2016? 2. Did any employee or other service provider exercise an option during 2016? The taxability of options is a complex matter that can be affected by many aspects and could require W-2, Form 1099 and/or Form 3921 reporting. We would be pleased to assist you in determining the proper compliance reporting, if any. Signature of Company Official Date PLEASE RETURN THIS QUESTIONNAIRE TO: Lynne Bolli lbolli@knscpa.com Katz, Nannis + Solomon, PC 800 South Street, Suite 250 Waltham, MA 02453 FAX 781-453-8778 5
(YOUR COMPANY NAME) STATEMENT TO EMPLOYER REGARDING EMPLOYEE USE OF EMPLOYER-PROVIDED VEHICLE COMPANY VEHICLE MILEAGE STATEMENT To: (EMPLOYEE / DRIVER OF VEHICLE) Please be advised that, during 2016, the Company furnished the vehicle described below for my use on Company business. I am providing the information shown below relating to my business and personal use of the Company-provided vehicle: Fair Market Value *** Year Make Model (cost) of Vehicle Auto is leased Company owned Ending odometer (10/31/16) Beginning odometer (11/1/15) Total Mileage (10/31/16 odometer reading minus 11/1/15 reading) Business mileage Nonbusiness mileage (includes commuting) All gasoline costs are paid by employer employee. If any vehicles were acquired or disposed of during the year, please make a copy of this page and provide the above information for each vehicle separately. The above figures are based on my written records of business use. I understand that I may be required to furnish such documentation in the event of an IRS or State examination of the Company s tax return. *** For Leased Vehicles, provide MSRP and for purchased vehicles, use the actual cost. _ Signature Date