Vision Payroll

July 2, 2011

Massachusetts Releases Employer-Provided Health Care Benefits Update

Navjeet K. Bal, Commissioner, Massachusetts DOR
Navjeet K. Bal, Commissioner, Massachusetts DOR
The Massachusetts Department of Revenue (DOR) has released Technical Information Release (TIR) 11-5, Employer-Provided Health Care Benefits Update. This TIR updates TIR 07-16, Personal Income Tax Treatment of Employer-Provided Health Insurance Coverage for an Employee’s Child, to reflect a Massachusetts statutory change to the personal income tax enacted in response to the federal Patient Protection and Affordable Care Act. The general effect of the Massachusetts change is to conform to the federal income exclusion rules for health care benefits that are in effect for each year, notwithstanding the general Massachusetts tie-in to federal income and exclusion rules as of January 1, 2005. The Massachusetts change is effective for tax years beginning on or after January 1, 2010.

Massachusetts Law Generally Conforms To 2005 IRC

In general, Massachusetts individual taxpayers must follow the Internal Revenue Code (IRC) in effect as of January 1, 2005. As a result of a recent law change in Massachusetts, taxpayers now follow the federal law for IRC §105 and §106 for exclusions from gross income for employer-provided health care benefits. This change is retroactive to January 1, 2010.

Amended Form W-2 May Be Required

Employers who imputed income for amounts that are now excluded from income may need to file Form W-2C, Corrected Wage and Tax Statement. Such a filing would be required if any 2010 or 2011 Forms W-2 have been provided to employees with such imputed income included. If a 2011 Form W-2 has not already been provided to affected employees, employers can simply adjust the 2011 Form W-2 when prepared. Employees who have already filed a 2010 Form 1, Massachusetts Resident Income Tax would need to file an amended return to reflect the Form W-2C. Employees who have yet to file can simply incorporate the Form W-2C figures into their return when they file.

Contact Vision Payroll for Assistance with Form W-2C

Contact Vision Payroll today if you have affected employees and need to file Form W-2C.

April 11, 2011

California Now Conforms To Federal Treatment on Income Taxes on Health Insurance for Certain Adult Children

Filed under: News — Tags: , , , — Vision @ 6:01 pm
Governor Jerry Brown
Governor Jerry Brown
California Assembly Bill (AB) 36 was signed by Governor Jerry Brown on April 7, 2011. This bill brings California into conformity with the Federal government regarding the Health Care Acts of 2010 for state income tax purposes.

Change Is Retroactive To 2010

AB 36 now excludes health insurance premium payments and medical reimbursements for medical care expenses on behalf of adult children, from California Personal Income Tax (PIT) wages/income and PIT withholding, retroactive to the original enact date(s) of the Health Care Acts in 2010.

2010 Amendments May Be Filed on Form DE 678

For 2010, employers who calculated a fair market value benefit amount as imputed income for California Personal Income Tax (PIT) wages for their employees and subsequently withheld PIT on this value should issue Form W-2C to impacted employees that reflect the correct PIT wage amount. Employers can amend their California state payroll tax returns using our Tax and Wage Adjustment Form (DE 678).

2011 Amendments May be Filed on Form DE 9ADJ

For 2011, if employers calculated a fair market value of the health insurance premium and withheld the applicable PIT in the first quarter and have already filed their Quarterly Contribution Return and Report of Wages (DE 9), they can amend the return by using our Quarterly Contribution and Wage Adjustment Form (DE 9ADJ).

Correct 2011 Reports Before Filing, if Possible

For employers who have calculated PIT wages and withheld PIT from their employees for the first quarter but not yet filed the DE 9 and Quarterly Contribution and Wage Adjustment Form (Continuation) (DE 9C), you may choose to file and report the correct wages and withholding amounts while revising your payroll process internally for the over-reporting and withholding.

Contact Vision Payroll for Further Information

Contact Vision Payroll for further information on the changes to California taxation of health benefits.

March 12, 2011

California Clarifies Tax Treatment of Health Care Coverage of Adult Children

California Clarifies Tax Treatment of Health Care Coverage of Adult Children
California Clarifies Tax Treatment of Health Care Coverage of Adult Children
The California Employment Development Department (EDD) has released a clarification to the original guidance provided on the tax treatment of health care coverage extended to adult children.

Patient Protection and Affordable Care Act Requires Extension up to Age 26

The Patient Protection and Affordable Care Act requires plans and issuers that offer dependent coverage to make the coverage available until a child reaches the age of 26. Both married and unmarried children qualify for this coverage.

Employment Taxes not Applicable To the Value of This Coverage

According to the EDD:

The extended coverage to adult children under the federal legislation referenced above is not considered wages that are subject to Unemployment Insurance (UI), Employment Training Tax (ETT), or State Disability Insurance (SDI), taxes. Existing State law, Section 931 of the California Unemployment Insurance Code (CUIC) excludes payments for employer-provided coverage under accident or health plans to a dependent from being considered taxable income for UI, ETT, or SDI purposes.

Section 931 of the CUIC does not apply to California Personal Income Tax (PIT) provisions. The fair market value for health care coverage to an adult child under the new federal provision is considered reportable income for California PIT purposes and subject to California PIT withholding. The fair market value of the health care coverage is set at the discretion of the employer.

Further Changes Are Expected In California and Other States

Check VisionPayroll.com frequently for updates to taxation of this coverage in California and other states.

January 28, 2011

Question of the Week: Why Don’t My Massachusetts Wages Equal My Federal Wages on My W-2?

Why Don’t My Massachusetts Wages Equal My Federal Wages on My W-2?
Why Don’t My Massachusetts Wages Equal My Federal Wages on My W-2?
This week’s question comes from Jordan, a company controller. For most employees in our company, the Massachusetts wages reported on the Form W-2 equal the federal wages on the Form W-2. My Massachusetts wages, however, are higher than my federal wages. Why don’t my Massachusetts wages equal my federal wages on my W-2? Answer: There may be several reasons why Massachusetts wages don’t equal federal wages on a Form W-2.

Differences Between Federal Wages and Massachusetts Wages on Form W-2

Although Massachusetts generally follows federal law on income taxation of wage benefits, certain items may increase or decrease Massachusetts wages as compared to federal wages. Among the differences are the following:

  1. Employee and employer contributions to Massachusetts governmental unit §414(h) retirement plans are taxable for Massachusetts purposes and not for federal purposes,
  2. The value of an employer-provided monthly transit pass in excess of $120 and not in excess of $230 per month is taxable for Massachusetts purposes and not for federal purposes,
  3. Imputed income from cost of health insurance coverage of former spouses and non-dependent children as required under Massachusetts law is taxable for federal purposes and not for Massachusetts purposes (prior to the change included in the Patient Protection and Affordable Care Act),
  4. Employee contributions to cafeteria plans for the benefit of a same-sex spouse and that spouse’s children when the same-sex spouse or that spouse’s children do not qualify as a dependent of the employee are taxable for federal purposes and not for Massachusetts purposes,
  5. Qualified tuition reduction that an educational organization provides to the same-sex spouse of an employee is taxable for federal purposes and not for Massachusetts purposes, and
  6. Employer contributions to an accident or health insurance plan for the benefit of a same-sex spouse and that spouse’s children when the same-sex spouse or that spouse’s children do not qualify as a dependent of the employee are taxable for federal purposes and not for Massachusetts purposes.

Contact Vision Payroll Now

Contact Vision Payroll if you have further questions on the differences between federal wages and Massachusetts wages on Form W-2.

July 4, 2010

Impact of the Small Business Health Care Tax Credit on Deductions for Health Insurance Premiums

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Over several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. Today’s topic is Impact of the Small Business Health Care Tax Credit on Deductions for Health Insurance Premiums.

The amount of premiums that can be deducted on the employer’s federal income tax return must be reduced by the amount of the Small Business Health Care Tax Credit.

The next topic to be covered in this series is Impact of the Small Business Health Care Tax Credit on Employment Tax Payments. Contact Vision Payroll if you have further questions on Impact of the Small Business Health Care Tax Credit on Deductions for Health Insurance Premiums.

June 18, 2010

Question of the Week: Are Health Insurance Costs Required To Be Reported on Form W-2?

This week’s question comes from Beverly, a small-business owner. We pay health insurance costs for our employees. I heard there was a change in reporting health insurance costs under the new law. Are health insurance costs required to be reported on Form W-2? Answer: Under the Patient Protection and Affordable Care Act (PPACA), beginning in the 2011 tax year (reported to Social Security Administration (SSA) in 2012), employers will be required to start including the aggregate cost for “applicable employer-sponsored coverage” for each employee on that employee’s Form W-2, Wage and Tax Statement. There is no requirement to include this information on the 2010 Form W-2, to be reported to the SSA in 2011. Contact Vision Payroll if you have any further questions on Form W-2.

March 27, 2009

Question of the Week: What Information Do We Need to Keep to Document the COBRA Credit?

This week’s question comes from Sandy, an HR manager. We’ve just had our first employee sign up to receive the COBRA premium subsidy. What information do we need to keep to document the COBRA credit? Answer: Employers reimbursing employees for 65% of the eligible COBRA continuation premium must maintain specific documentation. This information is not to be submitted with the Form 941, Employer’s QUARTERLY Federal Tax Return, but must be maintained and presumably presented to the Internal Revenue Service or Department of Labor upon request. The required information is:

  1. Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35% share of the premium.
  2. In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.
  3. In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.
  4. Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from September 1, 2008, to December 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.
  5. Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time during the period from Sept. 1, 2008, to Dec. 31, 2009, and election of COBRA coverage.
  6. A record of the social security numbers of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.
  7. Other documents necessary to verify the correct amount of reimbursement.

Earlier posts have discussed the COBRA premium subsidy in further detail. Click the COBRA tag for more information or contact Vision Payroll.

March 22, 2009

Tax Treatment of Health Coverage for Former Spouse Clarified

Filed under: News — Tags: , , , , , , — Vision @ 6:02 pm

The Internal Revenue Code of 1986 as amended (IRC) provides in §106 for an exclusion from income for employer-provided health insurance that covers the employee, the employee’s spouse, the employee’s children, and the employee’s qualifying relatives. Prop. Treas. Reg. § 1.125-1(h), 22 Fed. Reg. 43937 (August 6, 2007) clarified that coverage for a former spouse who is not a dependent is not excludible from an employee’s income. Therefore, the fair market value of coverage for a former spouse is includible in an employee’s income for federal income tax purposes.

In the recently released, Working Draft Directive 09-XX, Personal Income Tax Treatment of Employer-Provided Health Insurance Coverage for an Employee’s Former Spouse, the Massachusetts Department of Revenue concludes that any income required to be included in federal gross income for coverage required under Massachusetts General Laws (MGL) shall be excluded from Massachusetts gross income. Coverage may be required for former spouses under the following laws, among others: MGL c. 176G § 5A, MGL c. 32A § 11A, MGL c. 175 § 110, MGL c. 176A § 8F, and MGL c. 176B §6B. Contact Vision Payroll if you have any questions on this Working Draft Directive.

February 27, 2009

Question of the Week: How Does the American Recovery and Reinvestment Act of 2009 Change COBRA Continuation Health Coverage?

This week’s question comes from Doug, head of HR. I heard that the new tax law will impact employees eligible for COBRA. How does the American Recovery and Reinvestment Act of 2009 (the Act) change COBRA continuation health coverage? Answer: Under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA, certain former employees are allowed to continue health care coverage under their former’s employer’s group plan. The former employees must pay the cost of the health care premiums.

The Act made significant changes to COBRA continuation coverage. Under the Act, certain covered employees are required to pay only thirty-five percent of the premiums and their former employers must pay the remaining sixty-five percent. Employers may claim a credit on Form 941, Employer’s QUARTERLY Federal Tax Return, for the premiums paid for eligible employees.

The Internal Revenue Service recently released an updated Form 941 to reflect this law change and will soon release other updated forms, such as Form 941-X Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund.

Over the next several days, Vision Payroll will be posting additional articles on implementing the changes to COBRA continuation coverage required by the Act as well as other changes to payroll and HR by other sections of the Act. We’re also planning a seminar on implementing these changes, so contact Vision Payroll if you’d like to attend.

November 24, 2008

IRS Issues Fact Sheet on S Corporation Officer Compensation

The Internal Revenue Service (IRS) recently issued Fact Sheet FS-2008-25, which discusses S corporation officer compensation. Corporate officers, whether in S corporations or C corporations, are generally considered employees of the corporation. Officers who perform only minor services or no services and are not entitled to and do not receive compensation are not considered employees.

As an employee, officers who are also shareholders must receive a reasonable salary to the extent that distributions or other payments are made to the officer-shareholder. Factors considered when determining when compensation was reasonable have included the following:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • The use of a formula to determine compensation

The S corporation should deduct as fringe benefits any health and accident insurance premiums paid for so-called “2% shareholders”. The amount of the premiums is taxable to these shareholders for income tax purposes, but not for FICA or FUTA.

Pursuant to IRS Notice 2008-1, a medical plan is “established by the S corporation” even if the plan is in the name of the shareholder as long as the S corporation pays the premium or reimburses the shareholder for the premium payment.

Box 14 on the Form W-2 may be used to provide the shareholder with the amount of the premiums paid, but the income should only be reported on Form W-2 and not on either Form 1099 or Schedule K-1. Contact Vision Payroll if you have any questions on Fact Sheet FS-2008-25.

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