Tag Archives: tax

Fringe Benefits and Same-Sex Marriages

Special Updates: Same-sex couples, legally married in jurisdictions that recognize their marriages,will be treated as married for all federal tax purposes (including employee benefits). More specific IRS guidance includes: 

Agency guidance released by the U.S. Treasury Department and the IRS addresses the recognition of same-same marriage in the wake of the U.S. Supreme Court ruling that invalidated part of the Defense of Marriage Act (DOMA), which defined “spouse” as a person of the opposite sex who is a husband or wife for purposes of federal law.

  • Same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for all federal tax purposes (including employee benefits), according toRevenue Ruling 2013-17.
  • The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage. The ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.
  • An employee who purchased same-sex spouse health coverage under his or her employer’s plan on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income, and may be able to claim a refund of income taxes paid on the premiums by filing an amended return.
    • Procedures for correcting overpayments related to payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses are available in IRS Notice 2013-61 
  • Special Note: The IRS has issued a set of questions and answers, effective December 16, 2013, regarding the participation by same-sex spouses in cafeteria plans, health savings accounts (HSAs), and health flexible spending arrangements (FSAs). Subsequent Q&As clarify how the ruling affects qualified retirement plans.

Updated FAQs for same-sex spouses and FAQs for other same-sex couples are available from the IRS. For guidance on same-sex marriage laws specific to your state, visit our State Laws section, click on your state, and select “Same-Sex Relationships” from the left-hand navigation menu.

Jeffrey R. Ungvary President

Jeffrey R. Ungvary

New IRS Form for Third-Party Sick Pay Recap

Employers should note that a new IRS Form replaces the “Third-Party Sick Pay Recap” previously reported on Form W-2, Wage and Tax Statement. For wages paid in 2014, new Form 8922, Third-Party Sick Pay Recap, is used to reconcile employment tax returns with Forms W-2 when third-party sick pay is paid.

Third-party sick pay is sick pay that is paid to an employee by some person (the third party) other than the employer for whom services are normally performed. The Internal Revenue Code provides that any third party that pays sick pay that is included in wages must be treated as the employer for purposes of FICA and FUTA with respect to such wages (except as provided in the regulations).

A third-party payer of sick pay can be either an agent of the employer or a third party that is not an agent of the employer. In general, a third-party payer is an employer’s agent if the third party bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts.

Liability for FICA, FUTA, and Income Tax Withholding on Sick Pay
If sick pay is paid by the employer of the employee, the employer is liable for withholding and payment of employee FICA tax and federal income tax withholding from the sick pay that is wages, and the employer is also liable for the payment of employer FICA tax and FUTA tax with respect to the sick pay.

Where a third party makes payments of sick pay as the employer’s agent, the employer remains liable for the FICA tax, FUTA tax, and income tax withholding on the sick pay (unless otherwise agreed).

A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee), and the employee FICA tax with respect to the sick pay. The third party is also liable for the employer FICA tax and FUTA tax, unless the third party transfers this liability to the employer.

New Form 8922
Form 8922 must be used for filing “third-party sick pay recaps” to reconcile the reporting of sick pay paid by a third party on behalf of employers to employees in situations in which the liability for FICA taxes on the sick pay is split between the employer and the third party under applicable regulations.

Whether the employer or the third party is required to file the Form 8922 depends on which entity is filing Form W–2 with respect to the sick pay. An employer is required to file Form 8922 when the third party is liable for the employee FICA tax and income tax withholding, the liability for the employer FICA tax has been transferred to the employer, and the employer and third party have entered into an agreement to have the third party act as the employer’s agent for reporting on Forms W–2.

Form 8922 must be filed by March 2, 2015. Click here for more rules and requirements concerning third-party sick pay.

Our section on Employer Tax Laws provides important information for employers on employment taxes.

Jeffrey R. Ungvary President

Jeffrey R. Ungvary

Did You Forgo Health Insurance, You May Receive a Tax Penalty

If you decided to skip health insurance this year, consider this: Unless you can prove you have a valid excuse, you will be liable for a penalty during the coming tax season — and the time to start making your case is now.

That’s not all. People who bought subsidized insurance through one of the marketplaces may have new tax forms to complete, while paying the penalty itself may demand some serious number-crunching.

The Internal Revenue Service is gearing up to answer questions, but it warns that only half of the callers may get through — and those who succeed may have to wait a half-hour or more.

“There are quite a number of moving parts that taxpayers have not had to deal with,” said Kristin Esposito, technical tax manager for the American Institute of Certified Public Accountants.

The Obama administration’s Affordable Care Act — including its penalty provision — is in effect for the first time this year and will be reconciled through a person’s tax return.

For most taxpayers, this will simply mean checking a box on a tax return indicating they had insurance for the full year. But millions of others will have to grapple with new tax forms and calculations that may generate unexpected results.

To read more, click here.

Jeffrey R. Ungvary President

Jeffrey R. Ungvary

New IRS Forms for Tax Credits

If you got health coverage through President Barack Obama’s law this year, you’ll need a new form from your insurance exchange before you can file your tax return next spring.

Some tax professionals are worried that federal and state insurance marketplaces won’t be able to get those forms out in time, creating the risk of delayed tax refunds for millions of consumers.

The same federal agency that had trouble launching HealthCare.gov last fall is facing the heaviest lift.

The Health and Human Services Department must send out millions of the forms, which are like W-2s for people getting tax credits to help pay health insurance premiums.

The form is called a 1095-A, and it lists who in each household has health coverage and how much the government paid each month to subsidize their premiums. Nearly 5 million people have gotten subsidies through HealthCare.gov.

If the forms are delayed past their Jan. 31 deadline, some people may have to wait to file tax returns — and collect their refunds.

A delay of a week or two may not sound like much, but many people depend on their tax refunds to plug holes in family finances.

The uncertainty is unnerving to some tax preparation companies, which try to run their filing season operations like a military drill. The Obama administration says it’s on task, but it won’t provide much detail.

States operating their own health insurance marketplaces will also have to send out the forms, but the federal exchange serving 36 states has the biggest job. HHS will have to manage that while in the midst of running the 2015 health insurance sign-up season, when millions more are expected to try to get coverage.

“It’s very unrealistic to expect that they would be able to implement a process that distributed these forms in the middle of open enrollment, and on time,” said George Brandes, vice president for health care programs at Jackson Hewitt Tax Service.

The average tax refund is about $2,690, and people who count on getting money back often file early.

Jeffrey R. Ungvary President

To read more, click here.

Jeffrey R. Ungvary