Posts Tagged ‘W-2’

W-2 Reporting of Employer-Provided Health Coverage

Wednesday, October 30th, 2013

The Affordable Care Act requires many employers to report the cost of coverage under an employer-sponsored group health plan on employees’ W-2s. If you need to have a new earning code setup for this, please contact your Client Account Manager before processing your final 2013 check date.

All employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement, except as provided in the transition relief described below. This includes federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families), churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements, but does not include federally recognized Indian tribal governments or, until further guidance, any tribally chartered corporation wholly owned by a federally recognized Indian tribal government. Those that were not required at this time may choose to voluntarily comply this year and could be required in future years but the IRS will give at least six months of advance notice of any changes to the transition relief.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee whether or not it was pre-tax. In the case of a health FSA, the amount reported should not include the amount of any salary reduction contributions.

The cost of these health care benefits will be reported in Box 12 of the Form W-2, with Code DD. It is listed for informational purposes only, and is not taxable.

The transition relief applies to the following:

  • Employers who filed fewer than 250 Forms W-2 for the previous calendar year (employers who filed fewer than 250 W-2s for 2012 tax year, determined without application of any entity aggregation rules for related employers) will not be required to report the cost of coverage on the 2013 W-2s.
  • Multi-employer plans.
  • Health Reimbursement Arrangements.
  • Dental and vision plans that are not integrated into another group health plan or that give participants the choice of declining the coverage or electing it and paying an additional premium.
  • Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements.
  • Employee assistance programs, on-site medical clinics, or wellness programs for which the employer does not charge a premium under COBRA continuation coverage or similar requirements; and
  • Employers furnishing W-2s to employees who terminate before the end of a calendar year and request their W-2 before the end of that year.

Employers are not required to create a W-2 for the sole purpose of reporting health coverage.

For more detailed information on this topic and other Affordable Care Act Tax Provisions for Employers, visit: http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

Legal Disclaimer:  This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

 

W-2 Reporting of Employer Paid Insurance

Sunday, October 28th, 2012

W-2 ReportingThe Affordable Care Act requires many employers to report the cost of coverage under an employer-sponsored group health plan on employees’ 2012 W-2s.  If you need an earning code for this, please contact your Client Account Manager before processing your final payroll dated in 2012.

All employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement, except as provided in the transition relief described below.  This includes federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families), churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements, but does not include federally recognized Indian tribal governments or, until further guidance, any tribally chartered corporation wholly owned by a federally recognized Indian tribal government.  Those not required in 2012 may choose to voluntarily comply this year and could be required in future years but the IRS will give at least six months of advance notice of any changes to the transition relief.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee whether or not it was pre-tax.  In the case of a health FSA, the amount reported should not include the amount of any salary reduction contributions.

The cost of these health care benefits will be reported in Box 12 of the Form W-2, with Code DD.  It is listed for informational purposes only, and is not taxable.

The transition relief applies to the following:

  1. Employers who filed fewer than 250 Forms W-2 for the previous calendar year (employers who filed fewer than 250 W-2s for 2011 tax year) will not be required to report the cost of coverage on the 2012 W-2s.
  2. Multi-employer plans.
  3. Health Reimbursement Arrangements.
  4. Dental and vision plans that are not integrated into another group health plan or that give participants the choice of declining the coverage or electing it and paying an additional premium.
  5. Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements.
  6. Employee assistance programs, on-site medical clinics, or wellness programs for which the employer does not charge a premium under COBRA continuation coverage or similar requirements; and
  7. Employers furnishing W-2s to employees who terminate before the end of a calendar year and request their W-2 before the end of that year.

Employers are not required to create a W-2 for the sole purpose of reporting health coverage.

Click Here for more detailed information on this topic.

 Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

How Do I Read My W-2?

Wednesday, January 11th, 2012

W-2 Form1)     What do I do if my name or SSN is wrong?   Answer: Speak to your payroll department; a W-2c should be filed in replacement of the incorrect W2.

2)     What do I do if my address is wrong?  Answer: It is OK if your address on your W-2 is not accurate.  You just need to use your correct address on your tax returns and it is OK if it is different from your W-2.

3)     Why doesn’t the YTD on my last paycheck of the year match my W-2 amounts? Answer: Box 1 of your W2 is for federal taxable wages. To determine the amount in box 1, your total compensation is reduced by any pre-tax deductions or deferred earnings you’ve had within the year.

4)     Why are boxes 3 and 5 different than box 1?  Answer:  Box 3 and 5 are for SS & Med taxable wages. Some earnings and/or deductions, such as, 401K, 403B, or SIMPLE are SS & Med taxable but not taxable for Federal Income Tax (Box 1).  If boxes 3 and 5 don’t match each other, the employee probably reached the Social Security wage cap.  Social Security is only taxed on the first $106,800 wages (2011 cap) but Medicare does not have a cap.

5)     How can I prevent owing taxes when I file my annual return? Answer: Verify that your employer has an accurate W-4 Form on file, listing the proper number of withholding allowances, for your current situation.  For guidance on choosing your proper withholding allowance, visit www.irs.gov to access the “IRS Withholding Calculator” tool along with many other resources available, including the 2012 W-4 Form and instructions.

6)     Where are my pre-tax deductions shown on the W-2? Answer: Pre-tax deductions are not necessarily shown on your W-2.  There are only a few specific pre-tax deductions that are required to be specified or shown on your W-2.

7)     Why is the amount I had deducted for my HSA different than the amount in box 12W? Answer: The IRS requires the combined employee and employer HSA amounts to be included in box 12W.  Your last paystub of the year can be used to determine the employee contribution amount and the employer contribution amount.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

Employee Names on Form W-2

Saturday, December 31st, 2011

Employee Names on W-2sIt’s important to understand how employee names will be displayed on the W-2 forms so you can make sure they are entered correctly in the payroll system.  W-2’s provide information to your employees, the SSA, IRS and state and local governments so it’s important to try to correct any entry errors, which cause processing delays, before the end of December each year.

One way you can take preventative measures at year-end is by running the Employee Profile report.   This report gives detailed employee information and page breaks by employee so it can be distributed to your employees so they can make sure their W-2 information including social security number, spelling of full name and home address are correct.

An employee’s name should be entered exactly as it is displayed on their social security card.  If an employee has a name change, you should use the name on the original card until you see a corrected card.  Do not show titles or academic degrees, such as “Dr.,” “RN,” or “Rev.,” as those are not included on the social security card.  Generally, do not enter “Jr.,” “Sr.,” or any numerical suffixes unless the suffix appears on the card, and in that case, it should be entered after the last name in the “last name” field.  If the employee has a middle name or middle initial on their SSN card, it should be entered in the middle name field but no punctuation should be included since it needs to be entered exactly as it is on their social security card.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

IRS Updates on Forms, Limits and Credits

Sunday, October 31st, 2010

IRS RatesIR-2010-103, Oct. 12, 2010

WASHINGTON — The IRS today issued a draft Form W-2 for 2011, which employers use to report wages and employee tax withholding. The IRS also announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.

The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan.  The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.

IR-2010-108, Oct. 28, 2010

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2011. In general, these limits will either remain unchanged, or the inflation adjustments for 2011 will be small. Highlights include:

  • The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan remains unchanged at $16,500.
  • The catch-up contribution limit under those plans for those aged 50 and over remains unchanged at $5,500.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in  an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750.

For More information, click here.

Changes to Flexible Spending Arrangements (FSA, FLEX 125, HSA, MSA)

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan. A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions for 2011.

For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers.

Source: www.irs.gov

IR-2010-103, Oct. 12, 2010

Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.

Source: www.irs.gov

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

Employee vs. Independent Contractor – Tips for Business Owners

Monday, August 30th, 2010

Employee SpotlightThe misclassification of independent contractors isn’t a problem just during tax season, as state unemployment compensation and workers’ compensation offices increasingly are acting year-round as “the eyes and ears” of the Internal Revenue Service (IRS), (according to Ronald E. Wainrib, president of Ronald E. Wainrib & Associates in Franklin, Mass.) The phrase “1099 workers” is a shorthand reference to independent contractors, and refers to a federal tax form (Form 1099-MISC, rather than the W-2) used by employers to report payments to independent contractors.

Many companies have fallen into the most common time for misclassifications – which occurs when an employee leaves a position on good terms and then fills in on a temporary basis as an “independent contractor” for a month or two while the employer searches for a replacement. The worker often ends up doing exactly what the person did as an employee. One month turns into two, then four, and before long the employer is not working as hard to fill the position. The question then arises whether the person is classified properly.

Patterns can be difficult to change, but it is up to the employer to communicate and act clearly if they want to make someone an independent contractor who in the past was an employee. That person no longer should be:

  1. Attending team meetings
  2. Be going into an office regularly
  3. Be expected to work certain hours

Also, the individual:

  1. Shouldn’t have company business cards
  2. Shouldn’t be referred to as an employee

The IRS views a status that switches from Employee to Contractor or Contractor to Employee to both be red flags for tax fraud, and possible FLSA violations. Either way, an IRS and/or FLSA audit may be triggered, resulting in additional tax and penalties – not to mention the inconvenience of your business interruption to facilitate the audit and address the issues. Penalties for one misclassification may be thousands of dollars depending on the length of time and the amount of pay.

As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees. (From IRS Summertime Tax Tip 2010-20)

  1. The IRS uses three characteristics to determine the relationship between businesses and workers:
  2. - Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
    - Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
    - Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

  3. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
  4. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
  5. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
  6. Workers can avoid higher tax bills and lost benefits if they know their proper status.
  7. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
  8. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Links:

Publication 15-A, Employer’s Supplemental Tax Guide (PDF)
Publication 1779, Independent Contractor or Employee (PDF)
Publication 1976, Do You Qualify for Relief under Section 530? (PDF)
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF)
Submitted By:

Jean Austin, SPHR
Manager of HR Services
Payroll Control Systems
Office: 763-746-1942
Cell: 612-770-6187
jaustin@pcspayroll.com
www.pcspayroll.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.