employee

Article Dean Dorton

What is Changing?

Over the coming weeks, we will be sending out more details relating to the new tax law. Given the volume of changes, we will be releasing a more detailed review of a few specific topics at a time.

There are a few employment-related changes in the new tax bill which could require companies to rework internal policies or accounting immediately in 2018.

NEW: Credit for employers providing paid family and medical leave

For tax years beginning after 12/31/17, an employer that offers at least two weeks of annual paid family and medical leave, as described by the Family and Medical Leave Act (FMLA), to all “qualifying” full-time employees (proportionate for non-full-time employees) will be entitled to a tax credit. The paid leave must provide for at least 50% of the wages normally paid to the employee. “Family and medical leave” does not include leave provided as vacation, personal leave, or other medical or sick leave.

A “qualifying employee” is an employee who has been employed by the employer for at least one year, and whose compensation for the preceding year did not exceed 60% of the compensation threshold for highly compensated employees (i.e., compensation did not exceed $72,000).

The credit will be equal to 12.5% of the amount of wages paid to a qualifying employee during such employee’s leave, increased by 0.25% for each percentage point the employee’s rate of pay on leave exceeds 50% of the wages normally paid to the employee (but not to exceed 25% of the wages paid).

Time to repay employer-sponsored retirement loans

Old Law: Retirement plan loans were generally immediately due and payable when the plan terminated or the participant terminated employment. If the loan was not repaid, the plan would offset the loan against the participant’s account. This loan offset may be rolled over by making an equivalent contribution to an IRA or another qualified plan, but this had to be done within 60 days of the date of the offset.

New Law: For tax years beginning after 12/31/17, the period to roll over a loan offset is extended to the individual’s due date for the tax return for the year in which the offset occurred (including extensions).

What does this mean? You should review your company retirement plan loan distribution paperwork and determine whether any prospective modifications need to be made.

Moving/relocation expenses

Old Law: An employer could exclude qualified moving expense reimbursements from an employee’s wages for both income and employment tax purposes. Likewise, employees could claim a deduction for qualified moving expenses.

New Law: For tax years beginning after 12/31/17, qualified moving expense reimbursements are no longer excluded from wages except for Armed Forces on active duty, and are no longer deductible by the employee.

What does this mean? You should review your company policies relating to moving/relocation expenses and adjust them accordingly. Any reimbursements of these expenses to employees or direct payments of moving expenses on behalf of employees (e.g. payments directly to a moving company) should be treated as taxable compensation to the employee going forward.

Employee achievement awards

Old Law: An employer could deduct up to $400 (or up to $1,600 in the case of certain written nondiscriminatory achievement plans) of the value of certain employee achievement awards for length of service or safety. The employee receiving such award can exclude the award from income to the extent that the value of the award does not exceed the employer’s deduction.

New Law: For expenses beginning 1/1/18, the employee’s exclusion and employer’s deduction for employee achievement awards will not apply to cash and so-called “cash equivalents” (gift coupons/certificates, vacations, meals, lodging, tickets to sporting or theater events, securities, and other similar items). However, an employee can still exclude (and an employer can still deduct) the value of other tangible property and gift certificates that allow the recipient to select tangible property from a limited range of items pre-selected by the employer. The prior law annual amounts still apply.

What does this mean? You should review your company policies relating to employee achievement awards. If your company chooses to continue providing cash or cash equivalents, these should be treated as taxable compensation to the employee going forward. Alternatively, you can adjust your company policy to provide only non-cash/cash equivalents achievement awards going forward.

Employer deduction for entertainment, amusement, and recreation provided to employees

Old Law: An employer could fully deduct expenses for recreational, social, or similar activities primarily for the benefit of non-highly compensated employees, provided such activities directly relate to the active conduct of the employer’s business.

New Law: For expenses beginning 1/1/18, this deduction is fully disallowed.

What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.

Employer deduction for meals, food, and beverages provided to employees

Old Law: An employer could fully deduct any food and beverage expense that can be excluded from an employee’s income as a de minimis fringe benefit.

New Law: For expenses beginning 1/1/18, there will be a 50% limitation on the deduction for food and beverages that qualify as a de minimis fringe benefit, including expenses for the operation of an employee cafeteria located on or near the employer’s premises.

What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.

Employer deduction for meals and entertainment provided to customers

Old Law: An employer could deduct 50% of the cost of meals and entertainment expenses paid on behalf of customers provided they were directly related to the active conduct of that trade or business.

New Law: For expenses beginning 1/1/18, all entertainment, amusement, recreation expense, membership dues for business, recreation and social clubs, and related facility expenses are 100% disallowed regardless of whether or not directly related to the active conduct of a trade or business. However, the 50% deduction for food and beverages associated with the active conduct of a trade or business is retained.

What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.

Employer deduction for qualified transportation fringe benefits

Old Law: An employer could deduct the cost of certain transportation fringe benefit provided to employees (i.e., parking, transit passes, and vanpool benefits), even though such benefits are excluded from the employee’s income.

New Law: For expenses beginning 1/1/18, the employer deduction for qualified transportation fringe benefits is fully disallowed. In addition, except as necessary for ensuring the safety of an employee, the employer deduction for providing transportation or any payment or reimbursement for commuting to work is disallowed.

What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.

Disclaimer

The information presented is not intended to be a full and exhaustive explanation of the tax bills referenced as there are many more provisions. Please consult with your tax advisor regarding the policies that might be applicable to your specific situation.

Article Dean Dorton

Last night, the annual Best Places to Work in Kentucky awards ceremony was held at the Lexington Convention Center, where the Kentucky Chamber of Commerce and the Kentucky Society for Human Resource Management announced this year’s winners. Nearly 1,300 attendees joined in celebrating the 100 Kentucky companies who were recognized for their commitment to focus, measure, and move their workplace environments toward excellence. For the 13th consecutive year, Dean Dorton was a part of this prestigious list.

This year, Dean Dorton ranked #4 overall in the Medium Companies category (150 to 499 employees; determined as of November each year), having previously ranked #10 in the Small Companies category. This was Dean Dorton’s first year in the Medium Company category. Dean Dorton was also recognized as one of only six companies who has been a Best Place to Work for 13 years and is a member of the Best Places to Work Hall of Fame!

David Bundy, President & CEO,

“We are beyond proud and honored to be recognized in the Top 5 of Medium Companies in Kentucky this year. Our team members are the cornerstone of our success and their passion for each other, our clients, and their communities plays a large role in the overall culture of the firm. We strive to maintain a workplace that is both satisfying personally and professionally and through the information from the Best Places to Work in Kentucky survey, we are able to create and execute initiatives important to our team.”

The selection process, managed by Best Companies Group, is based on an assessment of the company’s employee policies and procedures and the results of an internal employee survey.

More about Best Places to Work in Kentucky and the full list of winners can be found at bestplacestoworkky.com.

Article Dean Dorton

Third party relationships have become more important as companies look to leverage outside expertise. As relationships evolve, management needs to keep a close eye to determine if the third party contractor has become an employee through the eyes of the IRS. The IRS provides guidance through Topic 762 (see below).

As discussed below, criteria exists to evaluate the contractor relationships; this area has drawn a lot of attention from the IRS. Companies should use caution in drafting service agreements — how much control a company has will go a long way in supporting the conclusion. The more autonomy a contractor can demonstrate in how he/she works will help support the contractor conclusion.

Please let us know if you want to discuss this situation with one of our subject matter experts.

Topic 762: Independent Contractor vs. Employee

For federal employment tax purposes, the usual common law rules are applicable to determine if a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business. You should consider all evidence of the degree of control and independence in this relationship. The facts that provide this evidence fall into three categories: behavioral control, financial control, and the relationship of the parties.

Behavioral control covers facts that show if the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.

Financial control covers facts that show if the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:

  • The extent to which the worker has unreimbursed business expenses
  • The extent of the worker’s investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker
  • The extent to which the worker can realize a profit or incur a loss

Relationship of the parties covers facts that show the type of relationship the parties had. This includes:

  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
  • The permanency of the relationship
  • The extent to which services performed by the worker are a key aspect of the regular business of the company

Source: https://www.irs.gov/taxtopics/tc762.html

Contact your Dean Dorton advisor or Gina Whitis at gwhitis@deandorton.com to learn more.

Article Dean Dorton

In November, the IRS extended the deadline for employers to furnish Forms 1095-C and/or 1095-B to employees and covered individuals. The forms, which are required under the Affordable Care Act’s employer reporting mandate, are now due March 2, 2017 ― giving employers an additional 30 days to prepare and distribute 2016 forms. The extension is for 2016 tax year only, and no extension was provided to the due date for employers to submit data to the IRS.

1095-C
Applicable large employers (ALEs – generally employers with 50 or more full-time and full-time equivalent employees, measured in calendar year 2015) are required to report 2016 information about health coverage offered, or not offered, to certain employees. The ALE completes this requirement by furnishing Form 1095-C to the employee or former employee.

Access Form 1095-C

1095-B
Employers, regardless of size, who sponsor a self-insured health plan providing minimum essential coverage, are required to report information about enrollees’ coverage. To meet this requirement, Form 1095-B is generated and distributed to the primary enrollee, which also includes information on other participants enrolled in the primary enrollee’s health plan. Form 1095-B may also be generated directly from health plan providers (health insurance companies) for fully-insured plans.

Access Form 1095-B

Previous IRS Due Date New IRS Due Date
Deadline to distribute ACA reporting forms to employees and covered individuals (Forms 1095-C and 1095-B) January 31, 2017 March 2, 2017
Deadline to file ACA reporting forms with the IRS February 28, 2017 (paper)
March 31, 2017 (electronic)		 No change

Even with the extension, the IRS still recommends that employers distribute and file appropriate documents as soon as possible.

Read IRS Notice 2016-70

For additional questions on this ruling, please contact your Dean Dorton advisor or Jeff Ricketts at jricketts@deandorton.com.

Article Dean Dorton

You may be aware of the rule that allows businesses to deduct bonuses employees have earned during a tax year if the bonuses are paid within 2½ months after the end of that year (by March 15 for a calendar-year company). But this favorable tax treatment isn’t always available.

For one thing, only accrual-basis taxpayers can take advantage of the 2½ month rule — cash-basis taxpayers must deduct bonuses in the year they’re paid, regardless of when they’re earned. Even for accrual-basis taxpayers, however, the 2½ month rule isn’t automatic. The bonuses can be deducted in the year they’re earned only if the employer’s bonus liability is fixed by the end of the year.

The all-events test

For accrual-basis taxpayers, the IRS determines when a liability (such as a bonus) has been incurred — and, therefore, is deductible — by applying the “all-events test.” Under this test, a liability is deductible when:

  1. All events have occurred that establish the taxpayer’s liability,
  2. The amount of the liability can be determined with reasonable accuracy, and
  3. Economic performance has occurred.

Generally, the third requirement isn’t an issue; it’s satisfied when an employee performs the services required to earn a bonus. But the first two requirements can delay your tax deduction until the year of payment, depending on how your bonus plan is designed.

For example, many bonus plans require an employee to remain in the company’s employ on the payment date as a condition of receiving the bonus. Even if the amount of the bonus is fixed at the end of the tax year, and employees who leave the company before the payment date forfeit their bonuses, the all-events test isn’t satisfied until the payment date. Fortunately, it’s possible to accelerate deductions with a carefully designed bonus pool arrangement.

How a bonus pool works

In a 2011 ruling, the IRS said that employers may deduct bonuses in the year they’re earned — even if there’s a risk of forfeiture — as long as any forfeited bonuses are reallocated among the remaining employees in the bonus pool rather than retained by the employer. Under such a plan, an employer satisfies the all-events test because the aggregate bonus amount is fixed at the end of the year, even though amounts allocated to specific employees aren’t determined until the payment date.

Additional rules and limits apply to this strategy. To learn whether your current bonus plan allows you to take 2016 deductions for bonuses paid in early 2017, contact us. If you don’t qualify this year, we can also help you design a bonus plan for 2017 that will allow you to accelerate deductions next year.

Article Dean Dorton

On Monday, November 14, the United States Citizenship and Immigration Services (USCIS) released the anticipated new Form I-9 (Employment Eligibility Verification) that replaces the current version, which expired on March 31 of this year.

Beginning on January 22, 2017, employers are required to start using the updated I-9 Form (edition 11/14/16) as they review employment eligibility for their new employees.

Employers are required to utilize the I-9 Form to verify the identity and employment authorization for individuals to work in the United States within three business days of the employee’s hire date, for both citizens and non-citizens.

  • On the form, the employee must prove his or her employment eligibility, while the employer must review acceptable document(s) proving the employee’s identity and his or her employment authorization.
  • The list of acceptable document(s) can be found on the last page of the form, and the employer must determine whether the document(s) appear to be genuine before documenting the information on the I-9 Form.
  • Employers are accountable for the proper completion and retention of the I-9 for all employees.

View the New Form I-9

The new form was created in an effort to reduce technical errors and mistakes, which commonly existed on the previous version. As the Department of Labor has increased auditing efforts over the last few years, the most common mistakes found on the previous version of the form are:

  • Incomplete forms with missing information
  • Incorrect date format use
  • Failing to meet the retention guidelines or to complete the form within the required three business days

The new I-9 Form, when used in the Adobe PDF format, is a “smart” form designed to reduce those mistakes and help employers complete and retain accurate I-9 Forms.

A few of the notable improvements and features of the new PDF I-9 Form are:

  • Pre-populating certain fields for employers
  • “Click to Finish” button that reviews the form and notes errors
  • Automating format of birth date and date of hire fields
  • Drop down options to verify acceptable document(s), allowing users to easily identify where information should go

Employers should use the next two months to understand the form’s new functionality and to take the opportunity to determine how internal processes can/should change to maximize the capability of the new smart form.

If you have any questions, contact your Dean Dorton advisor or Jeff Ricketts at jricketts@deandorton.com.