Employment tax issues for year-end filing

Filling a tax formAs companies prepare to issue Forms W-2 and 1099 to their employees, many employment tax issues and questions can arise. These issues -- which can range from simple clarification of payroll tax form instructions to complex interpretations of employment tax policies and procedures for which no definitive guidance exists -- can have a significant impact on your internal and external reporting and compliance procedures.

Having an in-depth and detailed knowledge of the federal and state employment tax laws can lead to the treatment of certain payments made to employees as non-taxable for employment tax purposes. Consequently, such knowledge can lead to reduced employment tax exposure or assessments.

Human Capital BulletinThe following is a small sample of frequently asked questions by payroll departments:
  • How do I report my employment taxes for the year if I had an acquisition?
  • Should we reconcile the W-3s to the 941s?
  • What are the withholding regulations on deferred compensation payments?
  • What are my options if I failed to check the correct box on Form W-2?
  • Do I issue a W-2 or 1099?

There are also other concerns a payroll department has regarding proper payroll reporting. Frequent concerns in this area include:
  • Federal Forms W-2, Wage and Tax Statement and 1099, Miscellaneous Income
  • Other payroll tax forms (e.g., 940, 941, W-4, W-5, unemployment tax quarterly contribution reports)
  • FICA, FUTA and income tax withholding issues
  • State unemployment tax issues
  • Types of deductions from pay (e.g., wage assignment, garnishments)
  • Independent contractor classification
  • Stock options/stock-based compensation
  • Moving/traveling expenses
  • Multistate/interstate employment
  • Nonresident alien reporting
  • Business expense reimbursements
  • Severance pay/separation pay
  • Taxability of fringe benefits
  • Tax reform impacts

As a result of tax reform, payroll departments must also be on top of changes in tax laws that went into effect for calendar year 2018. For instance, under federal rules any moving expense reimbursements for employees who moved in 2018 are no longer tax-free – even for qualified moving expenses – and the entire amount should be reported as wages on the employee’s W-2. However, not all states follow the current Internal Revenue Code and therefore certain moving expenses will not be taxable in a state. Therefore a payroll department needs to be up to date on federal and state issues.

For 2018, The U.S. Labor Department has released the annual information regarding the jurisdictions that have not repaid their Title XII loan balances from the federal government. For 2018, the U.S. Virgin Islands will be the only remaining jurisdiction with outstanding loans, and employers with locations here should expect to see higher Federal Unemployment Tax Act (FUTA) taxes due to the credit reduction.

For the first time since 2011, for employers in California, the state has repaid the outstanding loans. As a result, the total federal unemployment tax will return to $42 per employee in that state.

With so many legal changes, many companies may want to consider using knowledgeable consultants in compensation and benefits law to assure the best possible compliance.

All payroll departments should be aware of these important dates, listed below, to ensure that all tax returns are timely filed.

Jan. 31, 2019
  • Forms W-2 due to employees
  • Paper and electronic Forms W-2 and W-3 due to the SSA
  • Forms 1099 due to vendors and contractors
  • Paper and electronic Forms 1099-MISC that report nonemployee compensation due to the IRS
  • Fourth quarter 941 Return due to the IRS
  • Annual 940 (FUTA) Return due to the IRS
  • Fourth quarter state unemployment returns
  • Certain state annual reconciliation returns

Feb. 15, 2019
  • Certain state annual reconciliation returns

Feb. 28, 2019
  • Paper Forms 1099 (except Forms 1099-MISC reporting nonemployee compensation) due to the IRS
  • Certain state annual reconciliation returns

March 15, 2019
  • Certain state annual reconciliation returns

March 31, 2019
  • Electronic Forms 1099 (except Forms 1099-MISC reporting nonemployee compensation) due to the IRS
  • Certain state annual reconciliation returns

Bob Woodall
Director - Human Capital Services
Southern California
T +1 949 878 3350

Hal Bellovin
Director - Human Capital Services
New York
T +1 732 516 7600

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