Payroll A Comprehensive Look Howard Simon & Associates, Inc., HS&A Payroll Services, Inc.

Transcription

1 Payroll A Comprehensive Look

2 Year End Resources Agenda Calendar Of Events Common Year End Review, Questions, Issues, Pitfalls 2012/2013 Tax Changes State Specific Tax Issues/Telecommuting Fringe Benefits (time permitting) 2

3 About Us/Me Howard Simon & Associates is independently owned, founded in 1981 Services include Retirement Planning, Payroll, Time & Attendance, HR, and Consultation COO of HS&A Payroll Services, Inc. Not a CPA just have lots of payroll experience 3

4 About You? HR//Accounting//Payroll? In-House//Outsourced? Software//Manual Preparation? Employee Population? What are the common pitfalls you face with payroll? Any specific to year end? 4

5 Year End Resources 5

6 Know Where to Go Get one good book: We recommend the Payroll Source from the APA. Alternative/Subscription Sources: BNA (this is what we use) CCH Lexis Nexis State and Local Web Sites Most services just provide re-statements or summaries of IRS information. Go straight to the source for free. Pick up the phone and call 6

7 The majority of the tax compliance information found in this presentation has been provided by the IRS web site. Specific publications and links are detailed below and throughout the presentation. The full list can be found at: Publication 15: (Circular E), Employer s Tax Guide Publication 15-A: Employer s Supplemental Tax Guide Publication 15-B: Employers Guide to Fringe Benefits Publication 463: Travel, Entertainment, Gift, and Car Expenses Publication 509: Tax Calendars 7

8 Common Year End Review 8

9 Tax Calendar: Due January 31 st By January 31 Furnish Forms 1099 and W-2. Furnish each employee a completed Form W-2, Wage and Tax Statement. Furnish each other payee a completed Form 1099 (for example, Form 1099-MISC, Miscellaneous Income). File Form 941 or Form 944. File Form 941, Employer's QUARTERLY Federal Tax Return, for the fourth quarter of the previous calendar year and deposit any undeposited income, social security, and Medicare taxes. File Form 940. File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. However, if you deposited all of the FUTA tax when due, you have 10 additional calendar days to file. File Form 945. File Form 945, Annual Return of Withheld Federal Income Tax, to report any nonpayroll income tax withheld in If you deposited all taxes when due, you have 10 additional calendar days to file. 9

10 Tax Calendar: Due February 28 th By February 28 File paper Forms 1099 and File Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, with the IRS. For electronically filed returns, the deadline is March 31. File paper Forms W-2 and W-3. File Copy A of all paper Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration (SSA). For electronically filed returns, the deadline is March 31. File paper Form File paper Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, with the IRS. For electronically filed returns, the deadline is March

11 By March 31 Tax Calendar: Due March 31 st File electronic Forms 1099, 8027, and W-2. File electronic Forms 1099 and 8027 with the IRS. File electronic Forms W-2 with the SSA. For information on reporting Form W-2 information to the SSA electronically, visit the Social Security Administration's Employer W-2 Filing Instructions & Information webpage at For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Filing Forms 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically, and Publication 1239, Specifications for Filing Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips Electronically. 11

12 By March 31 Tax Calendar: Due March 31 st File electronic Forms 1099, 8027, and W-2. File electronic Forms 1099 and 8027 with the IRS. File electronic Forms W-2 with the SSA. For information on reporting Form W-2 information to the SSA electronically, visit the Social Security Administration's Employer W-2 Filing Instructions & Information webpage at For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Filing Forms 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically, and Publication 1239, Specifications for Filing Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips Electronically. If paper filings the due date is February 28th 12

13 February 15 Other Important Dates Request a new Form W-4 from exempt employees. February 16 Forms W-4 claiming exemption from withholding expire. By April 30, July 31, October 31, and January 31 Deposit FUTA taxes. Deposit federal unemployment (FUTA) tax due if it is more than $500. File Form 941. File Form 941 and deposit any undeposited income, social security, and Medicare taxes. Before December 1 New Forms W-4. Remind employees to submit a new Form W-4 if their marital status or withholding allowances have changed or will change for the next year. Withhold at S-0 if no form is provided. 13

14 Payroll Calendar Notes 2013 is a Standard Calendar Year: Number of Each Day: Monday 52 Tuesdays 52 Wednesdays 52 Thursdays 52 Fridays 52 Holidays: Be careful and plan for delivery to be delayed. Federal Reserve Holidays: Your Direct Deposits will not settle on a Federal Reserve holiday! 14

15 Internal Reconciliation and Preparation 15

16 Check Everything! Even if you have third party administrators or outsourced services, the IRS says you cannot delegate your tax responsibility! It is easier to get it right the first time, than to correct it A Smooth Year End = Happy Employees 16

17 Other Considerations Plan Additional Payroll Check Dates In Advance Schedule additional checks well in advance so you do not run into tax and compliance issues. Additionally, your service providers will be busy, so advanced scheduling will facilitate a smooth process. Enter Year End Adjustments in Advance There is a lot going on at year end, the more you take care of in advance, the better off you are. Supplemental Payments Supplemental Payments should be taxed at the supplemental rate (more on this coming up) Federal Tax Liability In Excess of $100,000 Exceeding $100,000 of Federal tax liability in any deposit period automatically triggers a next day due date. Beware about multiple check date liability issues! 17

18 100K Tax Liability Monday Tuesday Wednesday Thursday Friday 1 st payroll processed liability of 70K 10% liability for late deposit or 7K!! 2 nd Bonus Payroll Processed with Federal liability of 50K All taxes due today because liability is over 100K Typical Due Date is following Wednesday 18

19 Record Retention We recommend 7 years due to various state requirements. However, the IRS Recommendation is to: Keep all records of employment taxes for at least 4 years. These should be available for IRS review. Your records should include: Your employer identification number (EIN), Amounts and dates of all wage, annuity, and pension payments, Amounts of tips reported to you by your employees, Records of allocated tips, 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 to you as undeliverable, Dates of employment for each employee, Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them, Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W- 4(SP), W-4S, and W-4V), Copies of employees' Earned Income Credit Advance Payment Certificates (Forms W-5 and W-5(SP)), Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS, Copies of returns filed and confirmation numbers, and Records of fringe benefits and expense reimbursements provided to your employees, including substantiation. 19

20 Reconcile: Individual Payroll W-2s You must reconcile your individual payrolls to your forms W-2. Skipping steps leaves room for error. Adjustments and accumulators can cause discrepancies. Don t skip steps. Payroll Year-To-Date Reports Year-To-Date Reports Tax Returns (Q1, Q2, Q3, Q4) Tax Returns (Q1, Q2, Q3, Q4 ) Control Totals for W-2s Control Totals for W-2s (Box 1) Gross Payroll 20

21 Duplicate W2 Request Employers must stamp reissued on W2 requests IRS requires the new copy to have reissued statement noted on it. This applies to copies of paper forms or retyped statements, and paper copies of electronic forms. If the original form was issued electronically and the duplicate will also be issued electronically, the payroll department does not have to insert reissued statement on the form Employers can charge a fee for additional W2 requests 21

22 Supplemental Payments Definition Supplemental wages are wage payments to an employee that are not regular wages. These include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for non-deductible moving expenses. Withholding Options 25% Added to regular wages in the period paid Supplemental Wages in Excess of $1,000,000 When supplemental wages for the calendar year exceed $1,000,000, the excess is subject to withholding at 35%. State Regulations Be sure to verify the applicable state regulations, as they may differ from Federal. 401k Most supplemental payments ARE subject to 401k, unless excluded by the document. Check with your provider. 22

23 Group Term Life Calculation (P15B) Many software packages have problems with the GTL calculation. Create a spreadsheet to verify the GTL amount. Group Term Life: Name Hire Date Birthday Total Coverage LOS Age Excess Coverage Multiple Monthly GTL WAGES Person 1 5/1/2011 1/1/ , , ,263 Other Person 1/1/2000 5/1/ , , The Thrid Person 1/1/1998 8/1/1978 2,650, ,600, ,496 *For all coverage provided within the calendar year, use the employee s age on the last day of the employee s tax year. You must prorate the cost from the table if less than a full month of coverage is involved. 23

24 Group Term Life Exceptions (P15B) Exception for S Corporation Shareholders Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. The 10-Employee Rule Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. 24

25 Social Security Number Verification Service (SSNVS) The Social Security Number Verification Service (SSNVS) is one of the services offered by Social Security Administration's (SSA) Business Services Online (BSO). It allows registered users (employers and certain third-party submitters) to verify the names and Social Security Numbers (SSNs) of employees against SSA records. It is illegal to use the service to verify SSNs of potential new hires or contractors or in the preparation of tax returns. It is appropriate to use SSNVS only once an official employer-employee relationship has been established. SSNVS Handbook: 25

26 SSNVS and Reasonable Cause Publication 1586 provides important information on establishing reasonable cause to abate penalties related to incorrect SSNs. What is most important for establishing reasonable cause in connection with Form W-2 penalty provisions? The solicitation of the employee s correct SSN on the Form W-4 and the use of that number on the Form W-2 are the most important. What should an employer do if they receive information from SSA s SSNVS or EVS system that an employee has an SSN mismatch? Responses received through the SSNVS or EVS system are not considered IRS notices and therefore do not directly enter into the determination of reasonable cause for waiving penalties. The employer is not required to solicit a new SSN from the employee, but may wish to do so. Publication 1586 Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs: 26

27 Kind of Employer on Form W3 New In 2011 To improve document matching compliance, box b of the 2011 Form W-3 has been expanded to include a new section. None apply. Check this box if none of the checkboxes below apply to you. 501c non-govt. Check this box if you are a non-governmental tax-exempt section 501(c) organization. State/local non-501c. Check this box if you are a state or local State/local non-501c. Check this box if you are a state or local organization. State/local 501c. Check this box if you are a dual status state or local government or instrumentality that is also a tax-exempt section 501(c) organization. Federal govt. Check this box if you are a Federal government entity or instrumentality. 27

28 Independent Contractor vs. Employee From the IRS: It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. Avoid issuing a 1099 and a W-2 to the same employee in the same year. If transitioning a current employee from a W-2 to a 1099, begin on 1/1/2012. When in doubt, issue a W-2. 28

29 Independent Contractor vs. Employee Determination Factors Behavioral Does the company control or have the right to control what the worker does and how the worker does his or her job? Financial Are the business aspects of the worker s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Type of Relationship Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? Need Help? Complete an SS-8 and the IRS will make a determination for you. 29

30 Independent Contractor vs. Employee Erroneous Classifications The IRS has a Voluntary Correction Program: IR , Sept. 21, 2011 WASHINGTON The Internal Revenue Service today launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers. 30

31 Employer Healthcare Coverage on Form W-2 Informational reporting to employees of the cost of their employer-sponsored group health plan coverage. This informational reporting is required under 6051(a)(14) of the IRS Code, enacted as part of the Affordable Care Act to provide useful and comparable consumer information to employees on the cost of their health care coverage. This regulation will take effect for 2012 forms W-2. This reporting to employees is for their information only, to inform them of the cost of their health care coverage, and does not cause excludable employer-provided health care coverage to become taxable. Employers are not required to report the cost of health coverage on any forms required to be furnished to employees prior to January Currently, smaller employers that are required to file fewer than Forms W-2 will not be required to report the cost of health coverage on any forms required to be furnished to employees prior to January 2014 (this is the 2013 form W-2) 31

32 Employer Healthcare Coverage on Form W-2: Specifications The aggregate reportable cost is reported on Form W-2 in box 12, using code DD. An employer may apply any reasonable method of reporting the cost of coverage provided under a group health plan for an employee who terminated employment during the calendar year, provided that the method is used consistently for all employees receiving coverage under that plan who terminate employment during the plan year. The aggregate cost of applicable employer-sponsored coverage is the total cost of coverage under all applicable employer-sponsored coverage provided to the employee. Interim Guidance: 32

33 From the IRS: 3 rd Party Sick Pay Employer. If you pay sick pay to your employee, you must generally withhold employee social security and Medicare taxes from the sick pay. You must timely deposit employee and employer social security and Medicare taxes and FUTA tax. There are no special deposit rules for sick pay. See section 11 of Publication 15 (Circular E) for more information on the deposit rules. Does not need to be reported by the sick pay provider until January 15 th which results in: Late payments require an IRS response Delay in annual filings and W2 delivery Contact your provider now! Get your reporting and know when to expect your year end package. Clearly identify who is issuing the forms W-2 and remitting the employer taxes. 33 Long Term Pay: Payments after 6 months absence from work. Social security, Medicare, and FUTA taxes do not apply to sick pay paid more than 6 calendar months after the last calendar month in which the employee worked.

34 Health Flexible Spending Accounts Starting in 2013 there is a $2500 limit for the plan year All plans need to be updated by the end of calendar year 2014 The Use it or lose it rule is being reviewed by the IRS See IRS Guidance at: 34

35 Sub-S Medical Medical Insurance Premiums treated as wages. The health and accident insurance premiums paid on behalf of the greater than 2% S corporation shareholder-employee are deductible by the S corporation as fringe benefits and are reportable as wages for income tax withholding purposes on the shareholder-employee s Form W-2. They are not subject to Social Security or Medicare (FICA) or Unemployment (FUTA) taxes. Therefore, this additional compensation is included in Box 1 (Wages) of the Form W-2, Wage and Tax Statement, issued to the shareholder, but would not be included in Boxes 3 or 5 of Form W-2. A 2% shareholder-employee is eligible for an AGI deduction for amounts paid during the year for medical care premiums if the medical care coverage is established by the S corporation. Previously, established by the S corporation meant that the medical care coverage had to be in the name of the S corporation. 35

36 FUTA Credit Reduction Credit reduction states are states that did not repay the money they borrowed from the Federal government to pay unemployment benefits. Employers must include liabilities owed for credit reduction in calculating their fourth quarter FUTA deposit. Updated 2012 list will be out in November 20 States in 2011 fell in this category, rumor is that 18 states will be in this category this year Amount depends on how long your state is on the list,.3% for the first years,.6% 2 nd, etc. (.3% is $21 per employee) expect to see SUI rates increase too 36

37 Important Rate Changes Federal Income Tax we all know that debate Tax Brackets (2012 Dollar Amounts) Marginal Rate Unmarried Filers Married Joint Filers Over But Not Over Over But Not Over $0 $8,700 $0 $17,400 10% 15% 8,700 35,350 17,400 70,700* 15% 15% 35,350 85,650 70,700* 142,700 25% 28% 85, , , ,450 28% 31% 178, , , ,350 33% 36% 388, , % 39.6% 37

38 Important Rate Changes Employee Social Security Employee Social Security is currently at 4.2% for 2012 waiting on Congress to see if this is extended, if not it will get back up to 6.2% 2013 wage limit recently announced is: $113,700 Employee Additional Medicare Individuals making more than $200,000 in wage income next year ($250,000 for couples) would see their Medicare payroll tax on amounts above these levels rise to 2.35 percent from 1.45 percent. 38

39 More on the Additional Medicare Tax Who is liable for the tax? An individual is liable for the Additional Medicare tax if the individual s wages, other compensation, or self-employment income exceeds the threshold amount for the individual s filing status Married 250K and Single 200K All excess wages are subject to this tax about the threshold amount The statute requires an employer to withhold Additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 There is no employer match on this compenent 39

40 : COLA Increases 40

41 Common Error: FLSA Regular Rate of Pay When computing overtime, you must use the Regular Rate of Pay when calculating the overtime premium portion of pay. Exempt/Nonexempt: There is typically no issue when computing overtime for employees that are paid at a single rate and do not receive any additional income or payments other than their hourly pay. Non-Exempt employees that receive pay at multiple rates or additional amounts require special calculations. The Regular Rate Of Pay is the total pay received for the period divided by the total hours worked. 41

42 Common Error: FLSA Regular Rate of Pay Example Regular Rate of Pay Example Data Wages Overtime Premium Total Hours 48 $9.21 *.5 $4.61 Hourly Rate $9.00 Overtime Due: $4.61 * 8 $36.88 Bonus Paid $10.00 Regular Pay Calculation Total Pay 48 Hours * $9.00 $ Regular Earnings $ Bonus $10.00 Overtime Earnings $36.88 Total Regular Earnings $ Total $ Regular Rate Of Pay $442 / 48 Hours $

43 State Tax Issues 43

44 Considerations 1. Residency Out of State Workers 2. Location of services performed watch out for telecommuters 3. Nexus Business connection for the employer considerations include: business location, sales transactions, or employees performing services. Differs from state-to-state 4. Reciprocity agreements 5. Unemployment Insurance 44

45 45

46 Lives In Wisconsin Works in Illinois Wisconsin Residents are not subject to IL income tax Neither are Iowa, Kentucky, or Michigan Must complete Form IL-W-5NR Company can do Courtesy withholding for Wisconsin employees HS&A suggests consultation with tax and legal advisors first by registering and filing in another state you may create Nexus Severance payments are taxable 46

47 Lives In Indiana Works in Illinois Indiana Residents are subject to IL income tax and IN income tax (no reciprocity in place) IL tax must be withheld IL tax is currently higher than IN tax, so only IL withholding is done If IL taxes ever go lower than IN taxes both IL and IN taxes would be withheld Employees would file returns with both states 47

48 Lives In Illinois Works in Indiana Now an issue for employees because IL taxes are higher than IN Now the employee has the following options: Make estimated payments to IL Increase IN withholding Company can do courtesy withholding but they would need to register in IL Employees would file returns with both states 48

49 Telecommuters If they perform services in their home state nexus is established and you need to withhold in that location and may have to pay corporate taxes in that location SUI obligations would be paid to that state If they split time between their home and the office then the state tax withholding would be proportionately split as well Certain states are still working these details out including Indiana and Virginia we recommend following these guidelines stated above 49

50 Fringe Benefits All fringe benefits have a high degree of complexity associated with them. The listing included in this presentation is intended to be a reference guide. When computing actual fringe benefits, please consult your tax professional. This section is not intended to be all inclusive. The majority of the information in this section is taken directly from the forms and publications referenced. 50

51 Summary Items from Publication 15-B: De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. An example of a de minimis benefit would be the occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. The exclusion also applies to graduate level courses. Employee Discounts Fringe Benefits: Less Common (P15B) This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). 51

52 Achievement Awards (P15B) Exclusion from Wages You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. Deduction Limit Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following: $400 for awards that are not qualified plan awards $1,600 for all awards, whether or not qualified plan awards A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. A highly compensated employee is an employee who meets either of the following tests. The employee was a 5% owner at any time during the year or the preceding year. The employee received more than $110,000 in pay for the preceding year. See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. 52

53 Transportation (Commuting) Benefits: Qualified (P15B) Qualified transportation benefits can be provided directly by you or through a bona fide reimbursement arrangement. This exclusion applies to the following benefits. A ride in a commuter highway vehicle between the employee's home and work place. A transit pass Cash reimbursements for transit passes qualify only if a voucher or a similar item that the employee can exchange only for a transit pass is not readily available for direct distribution by you to your employee. Qualified parking Qualified bicycle commuting reimbursement. 53

54 Business Use of Employee-Owned Vehicle If using your personal car for business purposes, you ordinarily can deduct car expenses. Important: To be treated as an expense reimbursement, the reimbursement must be provided under an accountable plan To be an accountable plan; Your expenses must have a business connection You must adequately account for the expenses You must return any excess reimbursement or allowance with a reasonable period of time 2011 Mileage Rates: Purpose Rates 1/1 through 6/30/11 Rates 7/1 through 12/31/11 Business Medical/Moving Charitable

55 Personal Use of Business-Owned Vehicle If you provide a car for an employee's use, the amount you can exclude as a working condition benefit is the amount that would be allowable as a deductible business expense if the employee paid for its use. If the employee uses the car for both business and personal use, the value of the working condition benefit is the part determined to be for business use of the vehicle. See Publication 535 for more details: Generally, you may include; Actual Expense Miles * Applicable Mileage Rate However, instead of excluding the value of the working condition benefit, you can include the entire annual lease value of the car in the employee's wages. The employee can then claim any deductible business expense for the car as an itemized deduction on his or her personal income tax return. This option is available only if you use the lease value rule to value the benefit. 55

56 Moving Expenses Publication 521 explains the deduction of certain expenses of moving to a new home because you changed job locations or started a new job. You can deduct your moving expenses if you meet all three of the following requirements. Your move is closely related to the start of work. You can generally consider moving expenses incurred within 1 year of the date you first reported to work at the new location You meet the distance test. Your new main job location is at least 50 miles further from your former home than your old main job location was from your former home You meet the time test. You must work full time for at least 39 weeks during the first 12 months after you arrive More information can be found at: 56

57 Summary of Fringe Benefits(P15B) Table 2-1. Special Rules for Various Types of Fringe Benefits Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare Federal Unemployment (FUTA) provided through a flexible spending or similar corporation employees who are 2% Accident and health benefits arrangement. shareholders. Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Adoption assistance Exempt1,3 Taxable Taxable Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated Athletic facilities by the employer on premises owned or leased by the employer. De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Educational assistance Employee discounts Employee stock options Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Exempt up to $5,250 of benefits each year. (See Educational Assistance, later.) Exempt3 up to certain limits. (See Employee Discounts, later.) See Employee Stock Options, later. Group term life insurance coverage Exempt Exempt1,4 up to cost of $50,000 of coverage. (Special rules apply to former employees.) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. (See Health Savings Accounts, later.) 57

58 Summary Continued (P15B) Table 2-1. Special Rules for Various Types of Fringe Benefits Type of Fringe Benefit Income Tax Withholding Social Security and Medicare Federal Unemployment (FUTA) Lodging on your business premises Meals Moving expense reimbursements Exempt1 if furnished for your convenience as a condition of employment. Exempt if furnished on your business premises for your convenience. Exempt if de minimis. Exempt1 if expenses would be deductible if the employee had paid them. No additional cost services Exempt3 Exempt3 Exempt3 Retirement planning Services Exempt5 Exempt5 Exempt5 Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($120, but see the Caution on page 1), qualified Transportation (commuting) benefits Tuition reduction parking ($230), or qualified bicycle commuting reimbursement6 ($20). (See Transportation (Commuting) Benefits, later.) Exempt if de minimis. Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Volunteer firefighter and emergency medical responder benefits Exempt Exempt Exempt Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. 2 Exemption does not apply to certain highly compensated employees under a self insured plan that favors those employees. 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. 4 Exemption does not apply to certain key employees under a plan that favors those employees. 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. 58

59 Contact Information: Thank You! HOWARD SIMON & ASSOCIATES retirement plan administration payroll solutions Brad Simon 304 Saunders Road Riverwoods, IL Phone: X222 Fax: