As in previous years, Lawmakers have made efforts in the closing weeks of the legislative year to pass legislation extending tax benefits and associated programs that have or would otherwise expire. At Paylocity, our Government Relations team members work closely with our Industry Partners and Resources to monitor trends that could potentially impact our clients.
In the closing weeks of this year, congress has delivered an extensive bill which addresses a wide range of Tax Administration provisions. On Friday December 18, 2015, President Barack Obama signed into law the Consolidated Appropriations Act of 2016 based on this bill.
Among the numerous provision contained in the act, several have significant impacts on Employers. Here are the details.
Parking and Transit Benefits
Similar to the retroactive changes that went into effect for 2013 and 2014, the monthly tax-free limit on transit/van pool benefits has increased for 2015 from $130.00 per month to $250.00 per month.
IRS is expected to provide guidance similar to prior years, allowing employers to report adjustments in the fourth quarter filing for transit and parking benefits paid out to employees in the first three quarters of 2015.
Paylocity clients should work with their account managers to provide any adjustments as soon as possible to allow enough to include any adjustments in their year-end tax filings.
Effective January 1, 2016, the tax-free limit will increase to $255.00 per month.
Tax Refund Fraud Prevention
Accelerated W2 Filing
Due to the increased incidents of Tax fraud and Identity theft, the IRS has moved forward with a provision to require employers to report W2 and 1099 data to the Social Security Administration and IRS by January 31 starting in January 2017 (for tax year 2016)
In addition to requiring the earlier filing of Forms W2 and 1099, Congress has also acted to close a loophole by prohibiting the IRS from issuing any refunds prior to February 15 of any upcoming tax years (or the fifteenth day of the second month closing the tax period). This additional change ensures the IRS has ample time to process forms W2 and 1099 before issuing refund to taxpayers.
As a Paylocity client, you can rest assured that forms W2 and 1099 will be filed by the new deadline electronically and securely.
W2C’s No Longer Required for de minimis Errors
Due to the change in the filing deadline for W2’s the Act also takes into consideration an earlier filing deadline could lead to more errors.
As a result, the Act also includes a provision to limit the dollar amount for which an error should be reported.
Beginning in 2016, Employers do not need to make adjustments on forms W2c for any amount less than $100 for social security and Medicare Taxes or for amount less than $25.00 in Withholding Taxes. No penalty will be imposed for any such amounts. Employees are granted the right to elect to have a corrected W2 issued to them and filed with the IRS.
We expect IRS to provide more guidance on de minimis W2 corrections shortly.
Truncation of the Social Security Number on W2.
Employers may now truncate the SSN when displayed on forms W2. Employers may now truncate the employee’s Social Security Number when displayed on forms W2.
Last year the IRS provided guidelines to Employers for Truncating taxpayer Identification numbers such as SSN’s on documents not prohibited from truncation due to IRS Tax Law. The new rules also apply to Employer ID numbers and International Taxpayer Identification Numbers (ITINS)
As a member of the Payroll Outsourcing Industry, Paylocity has been a proponent of SSN truncation for several years. Protecting the sensitive personal information of your employees is a top priority for Paylocity. Now protecting your employees personal information can extend to Tax Forms previously at risk.
Individual Taxpayer Identification Numbers
Effective immediately, the law makes the following provisions concerning Individual Taxpayer Identification Numbers (ITINs):
- -The IRS may issue an ITIN if the applicant provides the documentation required by the IRS either (a) in person to an IRS employee or to a community-based certified acceptance agent (as authorized by the IRS), or (b) by mail.
- -Individuals who were issued ITINs before 2013 are required to renew their ITINs on a staggered schedule between 2017 and 2020.
- -An ITIN will expire if an individual fails to file a tax return for three consecutive years.
- -The Treasury Department and IRS are required to study the current procedures for issuing ITINs with a goal of adopting a system by 2020 that would require all applications to be filed in person.
If you currently have a contractor or provisional employee with an ITIN, you should review these new provisions. Individuals who are impacted by the new regulations should receive notification that their ITINS will need to be renewed.
Affordable Care (Obamacare) “Cadillac Tax” Delayed
The law signed by the President also delays for two years the effective date of the 40% “Cadillac tax” on high-cost health plans. The tax, scheduled to take effect on January 1, 2018, is now delayed to January 1, 2020.
Motion Picture Service Companies to Save on FICA Taxes
Motion Picture Service Companies that provide staffing to Film productions can now act as an employer to staff provided to production services. Formerly Service Companies were forced to treat each production as a separate employment even for their staff. This required the Service Company to pay additional FICA tax when limits were reached.
Similar to the recent relief granted to PEO’s Employers can now realize tax saving associated with Social Security, Medicare and Federal Unemployment Taxes.
Employers should keep in mind that although this Law has changes impacting Federal Taxes, many states DO NOT allow the same tax advantages. Employers should consult their tax advisors for details pertaining to their state.
Work Opportunity Tax and other Credits
The Act also reinstates retroactively the Work Opportunity Tax Credit (WOTC) for five years, from 2015 through 2019.
In addition the WOTC credit has been modified beginning in 2016 to apply to employers that hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40% of the first $6,000 of wages.
The US Department of Labor (DOL) recently announced that WOTC forms with updated expiration dates are available. No other changes were made to the forms. DOL states that state workforce agencies may continue to accept and employers may continue to use, former versions of these forms that show a 2015 expiration date for a 90-day period following the release of the DOL’s announcement (ending February 16, 2016).
The updated employer forms are available here:
- Transition relief period. Until 90 days after the issuance of the DOL announcement (February 16, 2016), employers and their representatives can use either the newly approved ETA Forms 9061 or 9062 (with the August 31, 2018 expiration date) or the expired forms (with the June, July, or August 2015 expiration dates) to request certifications for their new employees. After February 16, state workforce agencies are instructed to not accept the expired forms.
- IRS Form 8850. In March 2015, the IRS released an unchanged Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with revised instructions. The IRS has indicated in the past that expired versions of Form 8850 can be used to request certifications for new hires of the target groups listed on that form only. State workforce agencies are instructed to accept any version of the IRS Form 8850, even those with an expiration date before March 2015, if information for the relevant target group is included.
Employer wage credit for active duty members of the uniformed services. Effective January 1, 2015, the law permanently extends the 20% employer wage credit for employees called to active military duty. Effective January 1, 2016, the credit applies to employers of any size, rather than only employers with 50 or fewer employees.
- Indian employment tax credit. Retroactive to January 1, 2015 and through December 31, 2016, the law extends the Indian tax credit on the first $20,000 of qualified wages paid to each qualified employee who works on an Indian reservation.
Similar to prior years, late-breaking tax changes have been announced with little time to react. Many changes require employers to make adjustments at an already very busy and hectic time of year. At Paylocity we work to keep you informed of late breaking changes. Our staff of account managers and trained tax professionals can assist you in understanding how these changes impact your business and most importantly, your employees.
Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.