President’s budget would accelerate W-2 filing due dates

Employers-guide-to-Presidents-FY-2015-budget

On March 4, 2014, the Administration’s Fiscal Year 2015 Budget was released to Congress, less than a     week after the House Ways and Means Committee published a discussion draft on proposed tax reforms.

From an employer’s perspective, the 2015 budget is very similar to previous years except for the noteworthy additions of an accelerated due date for filing information returns (e.g., Forms W-2 and 1099-MISC), provisions that further eliminate the filing of paper tax returns, and an expansion of income subject to the self-employment tax.

 January 31 deadline for filing Forms W-2 and 1099  

In 2011, as a response to the increase in tax refund scams, the IRS unveiled its vision for a “Real Time Tax System” where Forms W-2 and 1099 are available at the start of the tax filing season.   Under the current system, individual taxpayers receive their information statements on January 31, but information returns aren’t due until as late as March 31. This filing regime forces the IRS to use a look back method for matching Forms W-2 to individual tax returns.

Throughout 2012, the IRS solicited commentary from stakeholders about the feasibility of accelerating the filing deadline for information returns to January 31.   Business groups, such as the National Payroll Reporting Consortium (NPRC) identified numerous challenges businesses would face in meeting this earlier fling deadline, including the likely increase in Forms W-2c because of eliminating the essential gap between when employees receive their information statements and when information returns are filed.

The 2015 budget proposal is the first since 2011 that the administration makes a formal proposal to change the due date for filing information returns. Specifically, Forms W-2 would be due to the Social Security Administration and Forms 1099 to the IRS no later January 31, whether filed on paper on electronically.

At the same time, it is also proposed that the Treasury and IRS be given latitude to lower the 250-return threshold at which electronic filing is mandatory.

For other budget provisions potentially affecting employers, click here

To Have and To Hold | Employment Tax Considerations in Same-Sex Partner Benefits

This summer, the Supreme Court ruled in United States v. Windsor, that Section 3 of the Defence Defense of Marriage of Act (DOMA) (P.L. 104-199) is unconstitutional, meaning that lawfully married same-sex spouses may be treated as married for federal tax purposes. The ruling has broad implications and raised myriad questions about how federal tax laws should be applied to same-sex spouses retroactively and going forward.

Just before Labor Day Weekend, the Treasury and the Internal Revenue Service (IRS) issued much-anticipated guidance addressing how the federal definition of marriage is  amended as it pertains to same-sex partners. At the same time, the IRS posted Frequently Asked Questions to its website.

Revenue Ruling 2013-17 is located here:

http://www.irs.gov/pub/irs-drop/rr-13-17.pdf

FAQS are found here:

http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples]

and here:

 http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Registered-Domestic-Partners-and-Individuals-in-Civil-Unions]

State and Country of Celebration is Federal Standard

In a nutshell, for federal tax puproses, a couple is considered married if their marriage is valid under the laws of a state or foreign country.  Sensitive to the administrative hardship of applying a jurisdiction of residence rule, the IRS will look instead to the jurisdiction where the marriage was granted (i.e., the jursidiction of celebration.)

Treasury /IRS clarify that it will not deem as married a same-sex couple given only civil union or domestic partnership standing in the jurisdiction, even if such jursidcition grants these individuals the rights and responsiblities of married persons for purposes of that jurisdiction’s income tax.

So, Who’s Married Now?

It seems on the surface that it should be clear which couples now meet the federal marriage definition.  For instance, as of September 1, 2013, same-sex marriages were  recognized under the laws of 13 states and the District of Columbia.

End of story?  Not necessarily.

Individuals may assert, and correctly so, that they hold marriage licenses outside of these 14 U.S. jurisdictions.   For instance, certain counties have been issuing marriage licenses in states  (e.g., New Mexico and Pennsylvania) whose laws do not specifcally recognize same-sex marriages.

Additionally, same-sex marriage laws are rapidly evolving.  The courts are weighing in on the validity of same-sex marriage bans in some states (e.g., New Jersey, Ohio, Virginia), and some legislators have expressed support to legalize it in others (e.g., Hawaii).   Like the U.S., 2013 saw an increase in the number of countries recognizing same-sex marriages (e.g., France, Uruguay).

Without question, state and international same-sex marriage practices are quickly changing, in some instances resulting in temporary confusion as to the validity of a jurisdiction’s marriage license.

It is uncertain if Treasury or the IRS will issue updates as to those jurisdictions where marriage licenses have valid standing for federal purposes.

Same Sex Partner Benefits Post Windsor 8-28-2013

Retirement plans must adopt new standards by September 16, 2013

Tax-qualified retirement plans are required to recognize the validity of a same-sex marriage (as Revenue Ruling 2013-17 defines the term) prospectively as of September 16, 2013.   Plans are given more time to make plan amendments, and the IRS expects to issue further guidance on this topic.

Payroll must respond quickly, but not so fast

IRS FAQs tell affected taxpayers that they may immediately file for income tax refunds for prior years, which the IRS has clarified is only tax years 2010, 2011 and 2012, unless the statute of limitations is open (e.g., a protective refund as filed).  At the same time, the IRS announced that it will, sometime in the future,  issue streamlined procedures that employers may follow for employee and employer Social Security/Medicare (FICA) refunds for prior years.

There are a few important steps that payroll departments can take while awaiting the official word from IRS.

  1. Identify prior Forms W-2 that are implicated by the retroactive effect of same-sex spousal benefits
  2. Quantify adjustments that will need to be made to wages previously reported in boxes 1, 3 and 5.  Part of this analysis should also include 2013 wage and tax overstatements pursuant to same-sex partner benefits and how federal income tax and FICA withholding adjustments will be made.

For retroactive refund purposes, what fringe benefits are affected?

 The IRS has stated that only the fringe benefits shown in the chart below are implicated in prior-year refund requests; however, future guidance will include information as to other benefits that also may be involved. 

IRC Section   Fringe Benefit
106 Health and accident benefits including employee pre-tax contributions under a Section 125 plan, health savings accounts, health reimbursement arrangements and long-term care
117(d) Qualified scholarships
119 Meals and lodging for employer’s convenience
129 Dependent care assistance
132 No-additional cost services and qualified employee discounts