Employment tax issues for year-end filing

Employment tax issues for year-end filing As companies are getting ready for final year-end payroll processing and preparing to issue Forms W-2 and 1099, many employment tax issues and questions can arise. These issues, which can range from simple clarification of payroll tax form instructions to complex interpretation 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 enables payroll departments to determine appropriate treatment of payments made to employees as taxable or non-taxable for employment tax purposes, ensure correct federal and state tax withholding, and distribution of accurate payee statements and information returns to employees. Additionally, such knowledge can lead to reduced employment tax exposure or assessments.

The 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?
  • What do I do if I realize that tax withholding was incorrect after a W-2 has been issued?
  • When do I need to mail W-2 and 1099 forms to employees/independent contractors?

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
  • Non-resident alien reporting
  • Business expense reimbursements
  • Severance pay/separation pay
  • Taxability of fringe benefits
  • Tax reform impacts

FUTA and FUTA credit reduction For 2019, The U.S. Department of Labor has released the annual information regarding the jurisdictions that have not repaid their Title XII loan balances from the federal government. For 2019, the U.S. Virgin Islands will be 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. The additional FUTA tax owed is computed using the annual Form 940, and the additional tax payment is due by Jan. 31, 2020.

State Unemployment Tax (SUTA) A majority of states issue SUTA rate notices in November and December to notify employers of the SUTA rate assigned to them for the upcoming 2020 tax year. Each state has a deadline in which employers can protest the SUTA rate assigned to them. Some states also allow employers to make voluntary contributions to buy down their SUTA rate, based on the reserve balance in an employer’s UI account. An employer’s tax and payroll departments or third-party administrators need to ensure that the appeals and/or voluntary contribution forms are timely prepared and submitted to the states. The SUTA rates for the upcoming 2020 tax year then also need to be updated in the payroll systems for the SUTA accruals and payments to be correct.

Important year-end filing due dates Listed below are important dates that all payroll departments should be aware of to ensure that all tax returns are filed timely.

Jan. 27, 2020

  • Fourth quarter Employer’s Quarterly Tax/Payroll Report - Michigan

Jan. 30, 2020

  • Fourth quarter Employer's Quarterly Report – New Jersey

Jan. 31, 2020

  • Forms W-2 due to employees
  • Paper and electronic Forms W-2 and W-3 due to 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 IRS
  • Annual 940 (FUTA) Return due to IRS
  • Fourth quarter State Unemployment Returns – All states other than Michigan and New Jersey
  • Certain state annual reconciliation returns and state W-2 submissions
  • Certain local annual reconciliation returns

Feb. 17, 2020

  • Certain state annual reconciliation returns and state W-2 submissions

March 3, 2020

  • Paper Forms 1099 (except Forms 1099-MISC reporting nonemployee compensation) due to IRS
  • Certain state annual reconciliation returns and state W-2 submissions
  • Certain local annual reconciliation returns

March 31, 2020

  • Electronic Forms 1099 (except Forms 1099-MISC reporting nonemployee compensation) due to IRS

New Form W-4 for calendar year 2020 Payroll departments must also be on top of changes in tax laws and regulations from the IRS and other state and local tax authorities. For instance, the IRS made a revision to Form W-4, Employee’s Withholding Allowance Certificate, for tax year 2020 due to The Tax Cuts and Jobs Act to suspend the use of personal exemptions in figuring individual tax liability. Payroll departments will need to ensure that any newly hired employees and those employees wishing to change withholding amounts in 2020 would need to file a new form and submit to the payroll department prior to the first payroll run for the upcoming tax year. There may also be changes to state withholding tables and state withholding allowance certificates that clients will need to ensure are updated in their payroll systems prior to the first payroll run for the upcoming 2020 tax year.

Bob Woodall
Director/National Practice Leader
Employment Tax Services
T +1 949 878 3350

Grishma Chudgar
Employment Tax Services
T +1 949 878 3360

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