Category: Payroll

If you “write off” any employee business expenses for yourself or your employee’s, this article may be for you.

Tax reform brings changes to fringe benefits that can affect an employer’s bottom line and what employee’s can actually deduct on their personal returns. 

 

Source: Tax Reform Tax Tip 2018-162: Tax reform brings changes to fringe benefits that can affect an employer’s bottom line

 

As most of you are aware we have a new tax plan in place for tax year’s 2018 – 2026 (as of now).  Among the many changes previously deductible employee business expenses (including fringe benefits) may be excluded or the process has changed.

Continue reading….

 

The IRS reminds employers that several programs have been affected as a result of the Tax Cuts and Jobs Act passed last year. This includes changes to fringe benefits, which can affect an employer’s bottom line and its employees’ deductions.

Here’s information about some of these changes that will affect employers:

Entertainment Expenses & Deduction for Meals
The new law generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.

However, under the new law, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present, and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. Food and beverages that are purchased or consumed during entertainment events will not be considered entertainment if either of these apply:

  • they are purchased separately from the entertainment
  • the cost is stated separately from the entertainment on one or more bills, invoices or receipts

Qualified Transportation
The new law also disallows deductions for expenses associated with qualified transportation fringe benefits or expenses incurred providing transportation for commuting. There is an exception when the transportation expenses are necessary for employee safety.

Bicycle Commuting Reimbursements
Under the new law, employers can deduct qualified bicycle commuting reimbursements as a business expense. The new tax law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income. This means that employers must now include these reimbursements in the employee’s wages.

Qualified Moving Expenses Reimbursements
Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the exclusion for qualified moving expense reimbursements.

There is one exception as members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if they meet certain requirements.

Employee Achievement Award
Special rules allow an employee to exclude achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies the definition of tangible personal property.

 

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-Thanks, Stephanie

http://www.paulinestaxservices.com

http://www.sctaxlady.com

http://www.irs.gov

http://www.Colorado.gov/revenueonline

 

 

DIY: Do you have a nanny or babysitter? They might be considered a household employee for tax purposes and you might be responsible for paying employment taxes.

 

https://www.irs.gov/publications/p926

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A client of mine recently had a baby.  Yay, Baby!!  With that bundle of joy comes additional tax responsibilities and implications… and sometimes credits and deductions.

 

She had two questions.  What is the nanny tax? And Is it simple to do it yourself or should you pay a professional payroll company? (Ultimately, my client decided to try it out herself before she hires a payroll service.  As with any business there are initial startup costs and then monthly bookkeeping and filings. Sometimes certain forms can be filed on a quarterly or annual basis. Record keeping and organization is imperative for “keeping the books” long term.)

 

 

Many years ago, nanny’s and day care providers were simply considered self employed and filed their income and expenses on the Schedule C (attached to the 1040). The family would pay cash or check and the nanny or sitter would account for it on their own returns.   However, now, the tax law states that if nanny’s are paid more than $2,000 a year they are considered employees and are subject to all of the regular employment taxes, unemployment insurance and workman’s comp. Thus creating additional paperwork and costs.

 

What is the nanny tax? And is it easy to DIY

This weird sounding tax is actually just basic employment and payroll taxes.  All employees and/or employers are required to pay social security taxes, Medicare taxes, and sometimes unemployment insurance.  The “employers” may or may not withhold and pay federal /state too.  You’ll save quite a bit of money doing it yourself and its not that difficult.  Although, it is work in a sense and it takes a bit of time.

Requirements:

  1. Be able to read and follow directions. Have some patience.
  2. Be organized: calculate hours worked, gross income and net income.
  3. Be tech savvy. Most of this stuff can be done online. It’s also handy to have a scanner/copier/ printer handy but it’s not required necessarily.
  4. Be able to follow due dates and pay on time (or you’ll be subject to fees and penalties).  Ex: for unemployment insurance,  you usually calculate January thru March and the money is due in April.

 

 

Startup

Go to irs.gov and search for form SS-4 (fss4), Employers federal ID number.  Fill it in and apply online, or download the pdf to a computer and fill it out by hand then mail it in. Im sure the agencies hate it, but I still do alot by hand and use my stamps.com account to mail it in.

Go to Colorado.gov/revenueonline and apply for a state wage withholding license (only if withholding state tax for your employee).

 

IRS’s publication 926  instructs household employers of their duties.  I’m going to use a combination of that publication and my own insight and experience to describe the process to do your own bookkeeping and payroll when you have certain employees.

 

The Numbers for Social Security and Medicare tax  Employer W-2 Filing Instructions & Information

The social security tax rate is 6.2% each for the employee and employer, unchanged from 2016. The social security wage base limit is $127,200.  The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2016. There is no wage base limit for Medicare tax. Social security and Medicare taxes apply to the wages of household employees you pay $2,000 or more in cash in 2017.

 

The process *not including responsibilities for withholding federal and state taxes for the employee*

Example. On February 13, 2017, Mary Brown hired Jane A. Oak (who is an unrelated individual over age 18) to care for her child and agreed to pay cash wages of $50 every Friday. Jane worked for the remainder of the year (a total of 46 weeks). Jane didn’t give Mary a Form W-4 to request income tax withholding. The following is the information Mary will need to complete Schedule H, Form W-2, and Form W-3. See the completed examples of Form W-2 and Form W-3 for 2017 at the end of this publication

 

Total cash wages paid to Jane                                      $2,300.00

($50 x 46 weeks)

 

Jane’s share of: Social security tax is $142.60             EE share

($2,300 x 6.2% (0.062))

 

Medicare tax is $33.35                                                     EE share

($2,300 x 1.45% (0.0145))

 

Mary’s share of:Social security tax is $142.60             ER share

($2,300 x 6.2% (0.062))

 

Medicare tax $33.35                                                         ER share

($2,300 x 1.45% (0.0145))

 

Amounts reported on Form W-2 and Form W-3:Annual reconciliation at tax time.  Additionally, the schedule K will be added to the individual 1040 and reconciled that way.  You may or may not be required to pay estimated quarterly tax payments to ensure you don’t owe more than $1000 at the end of the year.  Talk to your tax professional.

Box 1: Wages, tips                          $2,300.00

Box 3: Social security wages        $2,300.00

Box 4: Social security tax withheld $142.60

Box 5: Medicare wages and tips  $2,300.00

Box 6: Medicare tax withheld is     $33.35

 

The  social  security  tax  pays  for  old-age,  survivors,  and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both you and your household employee may owe social  security  and  Medicare  taxes.  Your  share  is  7.65% (6.2% for social security tax and 1.45% for Medicare tax) of  the  employee’s  social  security  and  Medicare  wages. Your employee’s share is also 7.65% (6.2% for social security tax and 1.45% for Medicare tax). Continue reading “DIY: Do you have a nanny or babysitter? They might be considered a household employee for tax purposes and you might be responsible for paying employment taxes.” →