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APS March 2018 Compliance Updates
APS reports on relevant, impactful compliance updates each month to help keep you at the top of your compliance game. This month we are seeing the release of state unemployment wage bases, state withholding tables and methods changes, and extended tax filing deadlines. Here are your March compliance updates:
IRS REDUCES SOME TAX-RELATED LIMITS FOR 2018
The IRS announced that cost-of-living adjustments were reduced for 2018 limits applied to health savings accounts (HSAs), adoptions, and foreign-earned income. The revisions are due to the federal tax code overhaul and are retroactive to January 1. Here are the revisions:
The maximum amount of tax-free contributions for covered benefits allowed for family coverage under a high-deductible health plan was decreased from $6,900 to $6,850. The maximum amount of tax-free contributions for covered benefits allowed for individual HSAs remains the same at $3,450.
The credit allowed for expenses related to adoption assistance was decreased from $13,840 to $13,810.
The maximum amount of foreign-earned income that a U.S. citizen or resident living and working abroad may exclude for tax purposes in 2018 has decreased from $104,100 to $103,900. The exclusion may be taken as long as the individual qualifies under Internal Revenue Code Section 911 requirements.
IRS REVISING 2019 W-4, WITHHOLDING CALCULATOR, PUBLICATIONS
For the 2019 filing season, the IRS plans to redesign Form W-4, update Publication 15-A, Employer’s Supplemental Tax Guide and Publication 15-B, Employer’s Tax Guide to Fringe Benefits, as well as update the online withholding calculator. More changes are expected to occur for the 2019 season in response to the federal tax code overhaul.
NEW SELF-AUDIT PROGRAM OFFERS EMPLOYERS COMPLIANCE FIX
A new program is being launched by the Labor Department that will allow employers to self-audit and self-report payroll violations. The Payroll Audit Independent Determination (PAID) program is designed to give good-faith employers who have identified payroll compliance issues the opportunity to fix them.
SAME-DAY ACH PROCESSING ON THE HORIZON
The Automated Clearing House (ACH) has made upgrades to its same-day processing system that will allow employers to more easily correct payment mistakes.
Same-day use cases apply to situations where an emergency payment needs to be made to correct an error or due to a missed deadline. Financial institutions must make funds transferred through same-day ACH credit or debit available to recipients by 5 p.m. local time beginning March 16. This marks the third and final phase of same-day ACH implementation.
INTEREST RATES TO INCREASE FOR 2018 Q2
Interest rates for tax underpayments and overpayments will increase for the second quarter beginning April 1, 2018:
- The interest rate for corporate tax overpayments will increase to 4%
- The interest rate for corporate tax underpayments will increase to 5%
- Large corporate underpayments will increase to a rate of 7%
- Corporate payments exceeding $10,000 will increase to 2.5%
- Noncorporate tax overpayments and underpayments will increase to 5%
UPDATED PAYROLL CARD COMPLIANCE GUIDE RELEASED
The Consumer Financial Protection Bureau (CFPB) released an updated compliance guide for small entities on March 13. The updated guide reflects changes made to the CFPB’s Prepaid Rule, which creates protections for prepaid accounts, including payroll cards.
The compliance guide was updated to reflect the extension of the Prepaid Rule’s effective to April 1, 2019 and includes a section detailing rules specific to payroll cards.
OVERTIME THRESHOLD MAY RISE TO MID-$30,000S
Employers are being urged to start auditing their employee classifications now in preparation for an adjustment to the overtime threshold.
The annual wage threshold below which employers must pay employees overtime could rise to the mid-$30,000s. It’s not known when this will happen or what the exact threshold increase will be, but employers should start preparing now.
The state supreme court has ruled the overtime pay rate for California workers who earned a flat-sum bonus within a pay period should be calculated on the number of non-overtime hours actually worked, not the number of non-overtime hours available to an employee in the period, to determine the per-hour value of the bonus.
According to the ruling, a flat-sum bonus should be factored into an employee’s regular rate of pay by dividing the bonus amount by the total number of non-overtime hours worked within a pay period and by using 1.5, not 0.5, as the multiplier to determine the employee’s overtime pay rate.
This ruling results in a much higher overtime rate than the federal method. As a result, California employers will need to review how they calculate overtime to ensure they are compliant.
AUSTIN, TEXAS PAID SICK, SAFE LEAVE
Austin’s paid sick leave ordinance requires employers with more than 15 employees to allow workers to accrue up to 64 hours, or eight work days, of paid leave. One hour of leave will accrue for every 30 hours worked. Companies with fewer than 15 employees must provide up to 48 hours of leave, or six work days.
Sick and safe leave may be taken to address the physical or mental health of an employee or to attend to the physical or mental health needs of a family member. The time may also be taken to address family legal and health issues related to stalking, domestic abuse, or sexual assault.
D.C. BALLOT MEASURE: TIPPED MINIMUM WAGE
Initiative 77, District of Columbia Minimum Wage Amendment Act of 2017, was certified to appear on the June 19, 2018, primary election ballot.
The ballot measure would eliminate the District of Columbia’s tipped minimum wage by 2025. The measure would gradually increase the D.C. minimum wage to $15 and hour by 2020. The minimum wage rate would gradually increase for tipped workers to that by 2026 they would receive the same minimum wage as other employees.
MISSOURI STANDARD DEDUCTION
The Missouri standard deduction has increased from $6,500 to $12,000 to reflect changes in the new federal tax code. Form MO W-4 was revised to include the new deduction and the state withholding calculator was updated.
CHANGES TO WEST VIRGINIA W-2 FILING
The West Virginia deadline for filing annual reconciliation returns has been changed to January 31, beginning with 2018 tax returns filed in 2019. The electronic filing threshold has also been changed to 25 employees effective for tax periods starting January 1, 2018. Previously, employers with at least 50 employees were required to file withholding returns electronically.
2018 EMPLOYER FRINGE BENEFIT GUIDE REFLECTS TAX LAW CHANGES
The IRS has released Publication 15-B, Employer’s Tax Guide to Fringe Benefits for use in 2018. There have been a few major changes from the 2017 version:
Publication 15-B no longer offers guidance on qualified moving expense reimbursements from employee income that occurred before January 1, 2018 due to the new federal tax law. Amounts given to employees as payment or reimbursement expenses related to starting work at a new location were suspended until January 1, 2026.
The new Fringe Benefits Guide offers a tip about deductions for employer-provided meals to employees on a tax-free basis:
“For amounts incurred or paid after December 31, 2017, the 50% limit on deductions for food or beverage expenses also applies to food or beverage expenses excludable from employee income as a de minimis fringe benefit. However, food or beverage expenses related to employee recreation, like holiday parties or annual picnics, aren’t subject to the 50% limit on deductions when made primarily for the benefit of your employees other than employees who are officers, shareholders or other owners who own a 10% or greater interest in your business, or other highly compensated employees.”
The maximum monthly amount an employer may provide on a tax-free basis for transit passes and qualified van pools is $260. The employer-provided parking exclusion is $260 a month. This fringe benefit applies to van pools, transit passes, and qualified parking. The bicycle-commuting benefit was eliminated.
The same principles in guidance on tax-free working fringes applies for 2018.
EMPLOYEE EQUITY GRANTS
Publication 15-B states that qualified employees of certain start-up companies who are granted stock options or restricted stock units may choose to defer the recognition of income for up to five years. This applies if the stock was not ready to be traded in a prior year if the company has a written plan under which at least 80% of all employees are granted options or restricted stock units “with the same rights and privileges to receive qualified stock, and if certain other requirements are met.”
Employers must report the amount included income in the year from qualified equity grants in Box 12 of Form W-2 using code GG. The total amount of income deferred must also be reported in Box 12 using code HH.
The new tax law defines “tangible personal property” in the context of employee achievement awards to exclude stocks, bonds, securities or other similar items, cash and cash equivalents, gift coupons, certificates, vacations, meals, lodging, or tickets to theater or sporting events.
STATES RESPOND TO TAX REFORM
Under the new tax law, states have to determine how to conform with the regulations. States are likely to make changes this year and in 2019 and 2020 due to the time required to analyze and carry out changes.
21 states and D.C. automatically conform to changes in the Internal Revenue Code (I.R.C.), meaning the federal tax code changes are already in effect. 18 states have static I.R.C. conformity dates. The primary concern states have is whether the new federal tax code would affect revenue.
WAGE AND HOUR INITIATIVES
- California, New Jersey, New York, Rhode Island, and San Francisco have paid family leave programs. Washington and D.C. will join them next year.
- 40 states and cities have paid sick leave and safe-leave laws. Rhode Island’s law will take effect July 1.
- Another state focus is on predictive scheduling laws. New York, Seattle, San Francisco, and San Jose have predictive-scheduling laws in effect and Oregon’s law will take effect July 1.
- Two competing federal paid sick-leave acts were introduced into Congress: the Healthy Families Act and the Workflex in the 21st Century Act. The 2019 fiscal budget proposal also includes a paid family leave provision.
Some states are considering allowing taxpayers to make charitable donations to state-run organizations in response to the federal tax code’s limit on deductions for state and local taxes. Furthermore, New York has proposed a payroll tax for employers and nine other states are considering an individual healthcare requirement.
MINNEAPOLIS, MINNESOTA MINIMUM WAGE
A city of Minneapolis ordinance signed into law June 30, 2017 to increase the hourly minimum wage to $15.00 was upheld by a Minnesota federal district court. The ordinance states employers with at least 101 employees must phase in the $15 minimum wage by July 1, 2022. Businesses up to 100 employees have until July 1, 2024 to phase in the $15 minimum wage.
Minneapolis minimum wage is set to increase on July 1, 2018 to $11.25 for employers with at least 101 employees and $10.25 for employers with up to 100 employees.
VERMONT WAGE BASE REDUCED
Effective January 1, 2019, Vermont’s state unemployment wage base will be $15,600, a decrease from the 2018 SUTA wage base of $17,600.
IOWA ALLOWING ELECTRONIC WAGE STATEMENTS
Effective July 1, employers in Iowa may provide employees with wage statements electronically each regular payday. The wage statements must be sent by secure transmission or by other secure electronic means.
Employers must allow employees to view their earnings electronically and provide them with a free means of printing a copy of the wage statement.
WEST VIRGINIA TO ALLOW WAGE RECOVERY FOR UNRETURNED PROPERTY
Under measure HB 2546, employers may deduct the replacement cost of employer-provided property not returned from an employee’s final paycheck effective May 15, 2018.
Employers must inform employees at the time of termination or resignation or as soon as possible thereafter by personal service or by certified mail of the replacement cost. Employers must also demand return of the property and provide a return deadline of up to 10 business days.
Qualifying employer-provided property is valued at more than $100 and includes:
Employees must have signed an agreement to return the property and have acknowledged the replacement cost may be deducted from their wages. Replacement tools are considered the employee’s property and are not covered under the measure.
OREGON RELEASES NEW TRANSIT PAYROLL TAX FORMS
Forms for the new Oregon transit payroll tax, effective July 1, 2018, were released on March 15. The tax withholds 0.1 percent of wages from state residents and nonresident workers.
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