Employment Tax Update: Fiscal Cliff and Other Entertaining Stuff

February 2013

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Agenda

February 2013

•Fiscal Cliff-American Taxpayer Relief Act•New York – MCTMT ruling•Healthcare Reform

Health Coverage ReportingMedicare Increase

•Quality Stores Decision•Federal Payroll Changes•State and Local Payroll Changes•Work Life Balance

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Fiscal Cliff - An update

•Employee Social Security tax rate returns to 6.2%

- Employers have until Feb 15 to implement new rate

- Social Security fund is expected to start going bankrupt in 2033

•Withholding Rate changes

- Employers have until Feb 15 to implement new rates

- Increase top tax rate in 2013 from 35% to 39.6%

- Supplemental rate is 25%

- Supplemental rate for payments greater than $1m is 39.6%

February 2013

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Fiscal Cliff-An update

•Transportation Fringe

- Retroactively increases the tax-free exclusion for mass transit expenses for 1/1/12 to 12/31/12 to $240, 01/01/13 now $245

- Adjustments are not optional-amended returns must be filed

- Form 941 “Special Administrative Procedure’ announced in Notice 2013-8

- If you provided more than $125 but less than $240 in transit benefits out of your funds or through salary reduction, it should be excluded from income.

- Form 941-X

- If no W-2s to SSA yet, you can VOID

- If W2s have been sent, you have to create a W2c February 2013

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Fiscal Cliff-An Update

•Educational Assistance

- Permanently extended at $5,250

•Adoption Assistance

- Permanently extended and currently at $12,970

•Emergency Unemployment Extended Benefits

- Extended through January 1, 2014

•WOTC will be retroactively extended from 1/1/12 to 12/31/13

February 2013

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Fiscal Cliff-An update

•Backup withholding

- Still at 28%

• Employer credit for employer-provided child care facilities is maintained

• Child care expense credit is $3,000 for one child and $6,000 for two or more children

February 2013

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New York - MCTMT

New York Metropolitan Commuter Transportation Mobility Tax ruling

• A Nassau County Supreme Court decision found the MCTMT to be unconstitutional on August 22, 2012.  This litigation is not concluded. 

• Taxpayers who have been paying this tax should continue to pay and file returns. 

• Protective claims and process for filing.

• If this requirement changes, the New York Department of Taxation and Finance will notify taxpayers.

February 2013

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Health Coverage Reporting

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan.

• Box 12, Code DD

• IRS has issued a table this shows exactly what should be reported- Employer and employee portions of health care cost

• Coordination with HR- Have you started gathering the data?- Are you prepared and have you tested the upload?

• Coordination with vendor / W-2 preparer

February 2013

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Increased Medicare WithholdingFor tax years beginning after December 31, 2012, an additional 0.9% hospital insurance tax (Medicare) applies to high-earning workers and self employed.

• Code Sec. 3101(b)(2), employment wages received in excess of: $250,000 for joint returns; $125,000 for married taxpayers filing a separate return; and $200,000 in all other cases.

• Under Code Sec. 1401(b)(2), the additional 0.9% Medicare tax applies to self-employment income for the tax year in excess of the above figures.

• Employers are obligated to withhold the additional 0.9% Medicare tax only on the individual's wages in excess of $200,000 (disregard wages received by the spouse).

• If the additional Medicare tax is not collected by the employer withholding, the individual is obligated to pay the tax.

• There is no employer match for the additional Medicare tax.

• The IRS said it does not plan to add additional boxes to Form W-2.February 2013

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Increased Medicare Withholding

FAQs provided by the IRS

Married co-workers

Mergers/Acquisitions

Agent payments

Paymaster

941 to be changed

February 2013

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Quality Stores

Sixth Circuit Affirms Quality Stores Decision on FICA Taxation of Severance Pay – Billions of Dollars in Refund Claims Are at Issue

• Severance payments made to employees pursuant to an involuntary reduction in force were not "wages" for FICA tax purposes

• The statute of limitations for filing a refund claim for severance payments made in 2009 closes on April 15, 2013. See §6513(c).

• Where the Sixth Court decision is applicable:- Kentucky - Michigan - Ohio - Tennessee February 2013

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Federal Taxes in 2013

FICA Base $113,700

Medicare 1.45% for first $200k

2.35% for wages greater than $200k

401k, 403b $17,500

Catch up Contribution $5,500

Annual Comp Limit $255,000

Mileage 56.5 cents

Mileage for moving 24 cents

Foreign Earned Income Exclusion $97,600

February 2013

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Federal Taxes in 2013

Flexible Spending Limit $2,500

Health Savings Account Annual deductible for individual coverage $1,250, family $2,500

Maximum annual election for

individuals $3,250 and $6,450 for family coverage

Form 941 Schedule R Agents must complete when filing an aggregate return preparing the allocation schedule

February 2013

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SUTA Affects on FUTA

FUTA tax (normally $42 per employee annually) is expected to nearly triple to an average of $124 per employee by 2014.

At least 23 states have depleted state UI trust funds, and have had to draw from a special federal UI loan fund as of May 21, 2012.

Nineteen States are now FUTA Credit Reductions for 2012.

February 2013

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State Income Tax Withholding - Mobility

3485/H.R. 1864, the Mobile Workforce State Income Tax Simplification Act of 2012

• To limit the authority of States to tax certain income of employees for employment duties performed in other States

• IN THE SENATE OF THE UNITED STATES August 2, 2012

- Mr. BROWN of Ohio introduced the bill which was read twice and referred to the Committee on Finance

• Letter to Senate committee from 184 employer asking the Senate to pass the bill

February 2013

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Audit Activity at the State and Federal Level

•IRS audits

- Contractor focused

- Nonresident withholding

•State audits

- NY

- CA

•Locals

February 2013

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California Specific Items

California Garnishments:

Effective July 1, 2013

Lesser of 25% of the employee’s disposable income; or the amount by which the employee’s disposable earnings for the week exceeds 40 times the state minimum hourly wage ($8/hour)

Currently 30 times

San Jose Minimum Wage

Effective 3-11-13, raised to $10 an hour for employees working in San Jose

Business Day Replaces Banking Day

Effective 1-1-13

February 2013

PwC

Work Life Balance

My life as a motivational speakerI haven’t climbed Mount Everest

I haven’t had my leg gnawed off by wild ferrets

Nine Methods of Life BalanceFebruary 2013 Paytech

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Nine Methods for Life Balance

1.Healthy Living is About More Than Diet

Being true to yourself and being present

2.Peace and a Positive Mind

Minimize distractions personally and professionally

3.The Value of a Giving Heart and Spirit

Give and you will receive

4.Live in your POWER

Perspective, Ownership, Wisdom, Engagement, Reward

February 2013

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Nine Methods for Life Balance

5.Work to Maximize Your Opportunities

Recognize your achievements

6.Happy is a Choice

Contentment and joy are lifestyles

7.Build Lasting Confidence

True confidence should come from a life well lived and enjoyed

8. The Courage to Be Faithful

Faithful to who you are

9.Exponential Living

Comfortable with who you are, not only what you doFebruary 2013

Thank you

© 2013 PwC. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.