Treasury regulations require non-accountable plan allowances be treated as taxable wages subject to Federal income tax and Social Security tax withholding.
First $137,700 is taxable, with a 6.2% tax rate for both
employee and employer.
All wages are taxable, with a 1.45% tax rate for both employee and employer. Employers should withhold an additional 0.9% on wages exceeding $200,000. There is no employer match on the additional 0.9%.
Federal Unemployment tax is 6% with most employers receiving a credit reduction of 5.4%, taxing at .6% on the first $7,000 in wages.
For 2019, the first $34,000 is taxable at rates depending on employment history and industry.**
First $14,000 is taxable at rates depending on employment history and industry.**
*2020 update was not available before printing.
**Established employers will receive their 2020 experience modified rate from respective states.
Tips are subject to Social Security and Medicare as well as Federal and state unemployment taxes. Service charges (forced gratuity) when turned over to the employee are considered regular wages. Sources: www.irs.gov / www.dwd.wisconsin.gov / www.uimn.org/employers/wages-taxes/tax-rates
There is still time to adopt an IRS qualified retirement plan as a tax planning strategy for 2019. Retirement plans are a great way to generate needed employer deductions and tax-deferred savings for the employee.
Plans to consider for 2019 are:
• Profit sharing
• Money purchase pension
• S-corp ESOPs
• C-corp ESOPs
• Cross-tested plans.
We can assist you in the implementation of these plans. For more information, contact Christine Bentson, CPA, RPA, CEBS, at email@example.com. The benefits plan dollar limits for 2019 and 2020 are highlighted below.
IRS Benefit Plan Dollar Limits (Adjusted for cost-of-living increases)
|Deferrals to 401(k) and 403(b) plans Under age 50||Deferrals to 401(k) and 403(b) plans Age 50 or older||Deferrals to SIMPLE Under age 50||Deferrals to SIMPLE Age 50 or older||Annual Limit on Compensation||Individual Account Limitation|
The IRS requires more information on W-2 Forms each year. Failure to comply with IRS reporting requirements can result in the assessment of penalties for non-compliance. Following is a general list of items that must be included in various boxes on the 2019 W-2 Forms, in addition to normal wages and compensation:
• Disability or sick pay paid by third party payers.
• Disability or sick pay not included in income.
• The value of employer-paid group term life insurance in excess of $50,000 per year.
• The value of other employer-provided life insurance is generally taxable as wages.
• The value of employer-provided disability insurance may be taxable. Talk to your client manager to determine which rules apply.
• Employee deferrals to salary reduction retirement plans. (SIMPLE, 401(k), etc.)
• Reimbursed employee business expenses in excess of amounts substantiated
• Allocated tips.
• Amounts paid for qualified educational assistance.
• Amounts paid for qualified adoption expenses.
• The value of the personal use of an employer-provided vehicle.
• Employer contributions for qualified long-term care services provided through a flexible spending or similar arrangement.
• Elective deferrals and designated Roth contributions.
• Dependent care plan benefits.
• Archer Medical Savings Account contributions.
• Employer contributions to Health Savings Accounts, including employee deferrals through a cafeteria plan.
• Benefits under a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
• Distributions from a non-qualified deferred compensation plan or a non-governmental Section 457(b) Plan.
• Yearly deferrals under Section 409A non-qualified deferred compensation plan
• Income currently taxable due to a failure of a non-qualified deferred compensation plan under Section 409A.
• Current year vesting in non-qualified deferred compensation plans are includable in gross income unless certain requirements are satisfied.
• Qualified Equity Grants with deferred compensation under Section 83(i) and amounts includable in gross income.
• Cash and non-cash fringe benefits including benefits provided to 2% or greater shareholders (or related employees) of an S-corporation.
• Moving expense reimbursement.
• Bicycle commuting reimbursement.
• Federal electronic reporting required when filing 250 or more Federal W-2s. Visit www.ssa.gov/employer for information about filing your W-2s electronically.
• Minnesota electronic reporting. E-filing is required if you have more than 10 W-2s.
Owners of Minnesota residential rental property are required to file a 2019 Form CRP (Certificate of Rent Paid). The form must be signed by the landlord and given to tenants by January 31, 2020. Redpath and Company can assist in preparing these forms. Please contact Heather Larson, CPP at firstname.lastname@example.org before Jan. 17, 2020 for assistance.
Minnesota and many other states have annual filing requirements for companies registered to conduct business in their state. For states with a filing requirement, businesses need to file an annual report or renewal with the Secretary of State. This filing requirement is separate from your income tax filing. Since each state has different deadlines and registration fees, it’s important to have a system to prompt filing as required throughout the year to keep your company in good standing. Minnesota’s annual renewal is due by December 31, 2019. If you’d like assistance with your annual filing requirements, please contact Teri Grahn, CMI, at email@example.com or 651-407-5889.
A withholding agent must withhold 30% of any payment of an amount subject to withholding made to a payee that is a foreign person. A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code) or any other entity. The 30% is withheld unless the payment can be associated with documentation that can be relied upon to treat the payment as made to a payee that is a U.S. person, or a beneficial owner that is a foreign person entitled to a reduced rate of withholding under a U.S. tax treaty.
Generally, an amount is subject to withholding if it is an amount from sources within the United States that is fixed or determinable, annual or periodical income. This consists of all gross income, including interest, dividends, rents, royalties, and compensation. It does not include most gains from the sale of property (although real property sales may be subject to withholding).
Failure to withhold when required results in the payor being liable for the tax plus penalty and interest.
Before making a payment to a foreign person or entity, taxpayers should request one or more of the Form W-8 series forms or Form 8233 from the payee that you believe to be a foreign person. The form you request will be dictated by what type of entity and status the payee is/has. This is a complicated analysis.
Form W-8BEN: Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)
Form W-8BEN-E: Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)
Form W-8ECI: Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the Unites States.
Form W-8EXP: Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting.
Form W-8IMY: Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting.
Form 8233: Request this form from any foreign independent contractor and any foreign student, professor, teacher or researcher employee to which you are making a payment if they are eligible for a reduced withholding rate.
Form W-9: Request for Taxpayer Identification Number and Certification.
In addition to the above forms, an annual informational return may be required. Recipient and IRS reporting to foreign person(s) with US source income subject to withholding is done on Form
1042-S (due by March 16, 2020 to the recipient and the IRS). To report the number of these forms filed and the tax withheld, use Form 1042 (due by March 16, 2020), Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
The reporting of payments to a foreign person can be complicated and subject to special reporting. If you have questions regarding the reporting of payments made to foreign vendors and the withholding requirements please contact Erich Pugh at firstname.lastname@example.org or 651-478-1514.
You have a household employee if you hired someone to do household work, and that worker is your employee. If you can control the work (i.e. when it is done, how it is done), then the individual would be treated as your employee. Household work can include: caretakers, cooks, housekeepers, nannies, and yard workers to name a few. See IRS Publication 926 for more examples and definitions regarding workers who are not your employees.
For 2019, if you paid cash wages of $2,100 (2020 cash wages are $2,200) to any one household employee you need to withhold and pay Social Security and Medicare Taxes. Special wage rules apply for Federal Unemployment tax and requirements to report to State Unemployment tax. W-2 reporting is also required if the $2,100 in Social Security and Medicare wages is met or you withhold federal income tax from wages paid. For assistance regarding household employer rules, please contact Heather Larson, CPP at email@example.com or 651-255-9324.
A Fringe Benefit is a form of pay for the performance of services. For example, you provide an employee a fringe benefit when you offer to pay a portion of their health insurance premiums.
Any fringe benefit you provide is taxable and must be included in income unless the law excludes it.
There are many cases where the law excludes the employer paid fringe benefit from income for regular employees. However, this exclusion does not always apply to greater than 2% shareholders of an S-corporation and any individual related to that owner through attribution rules (including spouse, children, grandchildren, and parents).
The following benefits, if paid by the company on behalf of 2% owners, are considered taxable compensation.
Not subject to Social Security and Medicare*:
• Health Insurance
• Dental Insurance
• Disability Insurance**
• Employer HSA Contributions
Subject to Social Security and Medicare:
• Section 119, Excluded meals and lodging
• Section 79, Group term life insurance
• Section 120, Group Legal Services
• Personal Use of employer-provided vehicles
• Non-Group Life Insurance
All of the above benefits are subject to applicable Federal and state withholding taxes. See individual state guidelines for more information. Important Note: Partners and 2% shareholders (including related individuals) are prohibited from participating in cafeteria plans. This includes health insurance and HSA deductions done through payroll. The benefit, if set up as a payroll deduction, should be set up after tax for greater than 2% shareholders and related individuals.
* Premiums must be pursuant to a company plan (a plan or system for employees or classes of employees).
** Insurance premiums subject to tax for Federal and State income puposes to avoid taxation of benefits are also subject to Social Security and Medicare Tax.
The Patient Protection and Affordable Care Act of 2010 required employers to report the cost of coverage under an employer-sponsored group health plan beginning with 2012 W-2 Forms, but most employers met the transitional relief rules making reporting optional and not requiring them to report the costs. The most common transitional relief rule making 2012 reporting optional applies to businesses that filed fewer than 250 W-2 Forms in the prior year. To date, no further guidance has been provided. The transitional relief rules applying to 2012 W-2 forms still apply to 2019 W-2 forms employers provide to employees in January 2020. For employers with greater than 250 Form W-2’s, see the Employer Shared Responsibility page on IRS.gov or contact Heather Larson, CPP at firstname.lastname@example.org.
The Federal minimum wage to be paid by covered employers is currently $7.25/hour. In cases where an
employee is subject to both the State and Federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.
Minnesota (as of January 1, 2020)
Minnesota’s minimum wage for all ages is $8.15/hour if annual sales
are less than $500,000. If annual sales are $500,000 or greater, the minimum wage is $10/hr. A training wage of $8.15/hr is available for new employees under the age of 20 during their first 90 consecutive
days of employment and for youth workers under the age of 18. Employers with employees working
within the boundaries of Minneapolis have additional minimum wage requirements.
Wisconsin minimum wage is $7.25/hour and $2.33/hour for tipped employees. These are reduced
to $5.90/hour and $2.13/hour for opportunity employees. An opportunity employee is an employee who is not yet 20 years old and who has been in employment status with a particular employer for 90 or fewer consecutive calendar days from the date of initial employment.
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Redpath and Company, Ltd. is 100% employee-owned (ESOP) and a leading accounting firm providing proactive, innovative, and value-driven CPA services for closely held businesses, government entities, and not-for-profit organizations. The firm started operations in 1971, and with offices located in downtown St. Paul and White Bear Lake, Minnesota, the firm ranks as one of the top CPA firms in the Twin Cities area. Bottom Line is published by Redpath and Company, Ltd. Office locations:
The information provided in this document does not constitute legal, accounting, or financial advice and is offered as a source of information only. Those seeking specific advice should contact a professional advisor. Laws, rules, and regulations can vary widely based on the specific facts involved. Given the changing nature of laws, rules, and regulations, the information in this document is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. It should not be used as a substitute for consultation with professional accounting, tax, legal, or other professional advisors. Redpath and Company is not responsible for any errors or omissions, or for the results obtained from the use of this information.