2022 BottomLine Newsletter

Your 2022 / 2023 guide to year-end tax updates and filing requirements.

Laptop and Taxes

Annual Update on Expense Reporting
and Per Diem Rates

Accountable Plans

An accountable plan allowance is an arrangement whereby the employer pays an employee a fixed amount or a formula- based amount of money to be used for employment-related expenses. The employee must account for how the money is used. All or a portion of the allowance or arrangement is not subject to payroll withholding rules provided the necessary substantiation requirements are met. Internal Revenue Service (IRS) per diem rates currently available are:

Mileage

The IRS issues optional standard mileage rates for the operation of an automobile for business, charitable, medical, or moving purposes.

Allowable rates are as follows for 2022:*

  • 62.5 cents per mile for business use from 7/1/22 to 12/31/22 (58.5 cent rate was from 1/1/22 to 6/30/22)
  • 22 cents per mile for medical or moving purposes for qualified active-duty members of the Armed Forces from 7/1/22 to 12/31/22 (18 cent rate was from 1/1/22 to 6/30/22)
  • 14 cents per mile for in the service of charitable organizations

*2023 rates are not yet available and will be provided at a later date.

Lodging, Meals, and Incidentals (Effective Oct. 1, 2022)


High/Low Method

  • High-Cost Locality $297 ($74 considered meals and incidentals)
  • Other Cost Locality $204 ($64 considered meals and incidentals)
  • Contact our office for a list of “high-cost localities” or the most recently published “specific locality” per diems.

Transportation Industry Rate for meals and incidentals

  • $69 per day for continental U.S. travel
  • $74 per day for non-U.S. travel
  • Federal Per Diem Rate
  • $157 standard rate ($59 considered meals and incidental expenditures)

Non-Accountable Plans

Treasury regulations require non-accountable plan allowances be treated as taxable wages subject to Federal income tax and Social Security tax withholding.

2023 Payroll Wage Bases and Tax Rates

Social Security

First $160,200 is taxable, with a 6.2% tax rate for both employee and employer.

Medicare

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

Federal Unemployment tax is 6% with most employers receiving a credit reduction of 5.4%, taxing at 0.6% on the first $7,000 in wages.

*Minnesota Unemployment

For 2022, the first $38,000 is taxable at rates depending on employment history and industry.**

Wisconsin Unemployment

First $14,000 is taxable at rates depending on employment history and industry.**

Tips

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.

*2023 update was not available before publishing.
**Established employers will receive their 2023 experience-modified rate from respective states.

Sources:

www.irs.gov

www.dwd.wisconsin.gov

www.uimn.org/employers/wages-taxes/tax-rates

FORM 1099: Reporting Requirements for Annual Information Returns

The following summary represents the filing requirements effective for 2022 information return reporting:

1099-NEC

Income reportable: Non-employee compensation

Reportable payments: amounts over $600 made by a trade or business in exchange for services by nonemployees. Reportable payments include but are not limited to: director fees, commissions to non-employees, payments for legal services, services performed including parts and materials.

  • Due Date to recipients: January 31, 2023
  • Due Date to IRS: January 31, 2023

1099-MISC

Income reportable (most common listed): Rent, Royalties, Other Income, Health care payments, Gross Proceeds to an Attorney

Reportable payments: $10 in royalties, $600 in rents, prizes and awards, other income payments, and health care payments

  • Due Date to recipients: January 31, 2023
  • Due to IRS: February 28, 2023 (Paper), March 31, 2023 (Electronic)

1099-INT, 1099- DIV, 1099-R

Income reportable: interest, dividends and distributions of stock, distribution from a qualified benefit plan.

Reportable payments: payments of at least $10 of interest, or $600 of interest (including tax-exempt interest) if paid in the trade or business of lending money or on registered notes, aggregate dividends and other distributions on stock of $10 or more, and for each distribution of at least $10 from a pension, annuity, retirement plan, Section 457 Plan, IRA, insurance contract, etc. during the year.

  • Due Date to recipients: January 31, 2023
  • Due to IRS: February 28, 2023 (Paper), March 31, 2023 (Electronic)

1099-K

Payments made by credit card or payment card and certain other types of third party network transactions, must be reported on Form 1099-K. This reporting is done by the credit card or third-party network provider and should not be reported on Form 1099-MISC or NEC. When reviewing your recipient lists, exclude amounts that were paid by one of these payment types. If a recipient was paid by both check and credit card, only the amounts payable by check would be reported on either the 1099-MISC or NEC.

Exceptions

Some payments do not have to be reported although the income may be taxable to the recipient. Below are the most common:

  • Generally, payments to a corporation, including a LLC that is treated as a C or S corporation are exempt from information reporting. Medical and Health care providers and attorneys that are taxed as a corporation are not allowed this exception and the amounts paid are still reportable.
  • Payments for merchandise, freight, storage and similar items do not need to be reported.
  • Payments to a tax-exempt organization, the United States, a state, or a foreign government do not need to be reported.

How to file

You are required to file electronically when your filings exceed 250 recipients per form type. For example, 300 1099-NEC and 100 1099-INT, only the 1099-NEC in this example meets the electronic filing requirement. Businesses reporting less than 250 recipients per form type can file by paper on the IRS preprinted red forms.

Penalties

Failure to file or late filing of Annual Information Returns range from $50-$280 per information return; penalties for failure to provide Forms 1099 and 1098 to recipients range from $50-$280 per recipient; and intentional disregard of filing requirements incur a penalty of at least $560 per payee statement with no maximum penalty.

Other annual information reporting requirements:

  • Form 1099-LS Reportable Life Insurance Sale, which requires the acquirer of a life insurance contract or any interest in a life insurance contract in a reportable policy sale to issue a form reporting payments made with respect to the sale.
  • Form 1098 - Mortgage interest recipients of $600 in the course of a trade or business
  • Form 1099-B - Broker or Barter exchange transactions
  • Form 1099-S - Real estate sales
  • Form 1099-G - Certain federal, state or local government unit payments (unemployment compensation)
  • Form 1099-PATR - Cooperatives which have paid at least $10 in patronage dividends and other distributions.

For detailed information regarding Form 1099 reporting, visit www.irs.gov.

If you have questions regarding information return reporting requirements or would like Redpath to prepare your forms, please contact Melissa Doumbia, CPP at mdoumbia@redpathcpas.com.

For Redpath and Company preparation of 1099s and 1098s, we require the following information by Jan. 13, 2023 in Microsoft Excel for over 10 recipients:

Required recipient information:

  • Name
  • Address
  • Social Security Number or Federal I.D. Number
  • Total of Payments in 2022

Retirement Plan Tax Strategies
Available for 2022

There is still time to adopt an IRS qualified retirement plan as a tax planning strategy for 2022. Retirement plans are a great way to generate needed employer deductions and tax-deferred savings for the employee.

Plans to consider for 2022 are:

  • Profit sharing
  • Money purchase pension
  • SEP
  • 401(k)
  • S-corp ESOPs
  • C-corp ESOPs
  • Cross-tested plans

We can assist you in the implementation of these plans. For more information, contact Karlie Johnson, Employee Benefits Specialist, at kjohnson@redpathcpas.com. The benefits plan dollar limits for 2022 and 2023 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

2023

$22,500

$30,000

$15,500

$19,000

$330,000

$66,000

2022

$20,500

$27,000

$14,000

$17,000

$305,000

$61,000

Employee W-2 Form Reporting Requirements

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 2022 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 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, deferrals, and vesting of nonqualified deferred compensation plans.
  • 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. (military only)
  • Bicycle commuting reimbursement.
  • Sick leave wages paid under FFCRA.
  • Federal electronic reporting required when filing 250 or more Federal W-2s. Visit ssa.gov/employerfor information about filing your W-2s electronically.
  • Minnesota electronic reporting. E-filing is required if you have more than 10 W-2s.

Deferred Social Security Tax

As a part of the CARES Act, employers were allowed to defer the deposit and payment of the employer’s share of Social Security taxes during the time frame of March 27, 2020 to December 31, 2020. The deferred deposits of the employer’s share of Social Security tax must be deposited by the following dates (referred to as the “applicable dates”) to be treated as timely (and avoid a failure to deposit penalty):

  • On December 31, 2021, 50 percent of the eligible deferred amount; and
  • On December 31, 2022, the remaining amount
How you can make your payment:

Employers can make the deferral payments through the Electronic Federal Tax Payment System (EFTPS) or by credit or debit card, money order or with a check and 941 Voucher. These payments must be separate from other tax payments to ensure they are applied to the deferred payroll tax balance. IRS systems won’t recognize the payment if it is with other tax payments or sent as a deposit.

Electronic Payment Option: 

EFTPS has added a new option for payment of the deferred Social Security taxes. The employer selects deferral payment and then changes the date to the applicable tax period the payment relates to. Employers can visit EFTPS.gov for details.

Paper Check Option: 

To pay by check, include a 2020 Form 941-V, Payment Voucher, for the quarter in which you originally deferred the deposit. Check the applicable quarter the payment relates to and mail the payment payable to United States Treasury, including your EIN, Form 941, and applicable quarter in the memo line of the check. Payments should be sent to the IRS addresses found in the IRS publication Form 941 Instructions based on the businesses state location. Send your payment to the address where you would mail returns without a payment.

Employee Retention Credit

The Employee Retention Credit (ERC) under the CARES Act encouraged businesses to keep employees on their payroll. The law was passed at the onset of the pandemic as a measure to help businesses continue operation and retain their employees during a time of uncertainty. Eligible employers for purposes of ERC are employers that carry on a trade or business that either fully or partially suspend operation during 2020 or 2021 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 or experience a significant decline in gross receipts during the calendar quarter.

The refundable tax credit is 50% of up to $10,000 in wages per employee paid by an eligible employer including certain healthcare costs whose business has been financially impacted by COVID-19 for dates after March 12, 2020, and before January 1, 2021 (maximum $5,000 credit per employee for 2020). For dates after January 1, 2021, and before September 30, 2021, the refundable tax credit is 70% of up to $10,000 in wages per employee per quarter paid by an eligible employer including certain healthcare costs (maximum $21,000 credit per employee for 2021).

To claim the Employee Retention Credit, eligible employers will report their total qualified wages and the related healthcare costs for each quarter on the applicable amended payroll tax return(s). For most employers, the amendment will be reported on Form 941-X, Adjusted Employers Quarterly Federal Tax Return or Claim for Refund. The credit is taken against the employer’s share of Social Security tax or Medicare tax depending on the applicable quarter and is fully refundable.

If you would like assistance to determine if your company is eligible for ERC and filing your amended payroll tax return(s), please contact Melissa Doumbia, CPP at mdoumbia@redpathcpas.com.

Form CRP due to renters January 31

Owners of Minnesota residential rental property are required to file a 2022 Form CRP (Certificate of Rent Paid). The form must be signed by the landlord and given to tenants by January 31, 2023. Redpath and Company can assist in preparing these forms. Please contact Melissa Doumbia, CPP at mdoumbia@redpathcpas.com before January 13, 2023 for assistance.

State Annual Filing Requirement

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, 2022.

If you’d like assistance with your annual filing requirements, please contact Teri Grahn, CMI, at tgrahn@redpathcpas.com.

Minimum Wage Law for
Minnesota and Wisconsin

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, 2023)

Minnesota’s minimum wage for all ages is $8.63/hour if annual sales are less than $500,000. If annual sales are $500,000 or greater, the minimum wage is $10.59/hr. A wage of $8.63/hr is available for new employees under the age of 20 during their first 90 consecutive days of employment for training and for youth workers under the age of 18. Employers with employees working within the boundaries of Minneapolis have additional minimum wage requirements.

Wisconsin

Wisconsin’s 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.

For more information visit www.dwd.wisconsin.gov or www.doli.state.mn.us.

Household Employee Requirements

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.

Nanny share arrangements will require each family using the nanny to report and file for each individual family’s wages paid. In addition, families that utilize a tutor for distance learning will not meet the definition of household work even though services may have been performed in an individual’s home. See IRS Publication 926 for more examples and definitions regarding workers who are not your employees.

For 2022, if you paid cash wages of $2,400 (2023 cash wages are $2,600) 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 $2,400 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 Melissa Doumbia, CPP at mdoumbia@redpathcpas.com.

S Corporation - Special Fringe Benefit
Reporting Rules

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 greater than 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 greater than 2% shareholders of an S-corporation (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 purposes to avoid taxation of benefits are also subject to Social Security and Medicare Tax.

Employer-Provided Health Coverage Informational Reporting

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 2022 W-2 forms employers provide to employees in January 2023.

For employers with greater than 250 Form W-2’s, see the Employer Shared Responsibility page on IRS.gov or contact Melissa Doumbia, CPP at mdoumbia@redpathcpas.com.


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.