The year-end is quickly coming to a close and it will soon be time to prepare and file forms W2 and the related payroll tax returns. We wanted to make you aware that some fringe benefits provided to employees as well as 2% or greater shareholders are taxable and should be reported on W2 forms in order for them to be deductible business expenses. Taxable fringe benefits include:
• Personal use of company vehicle (including shareholders’ use)
• 2% or greater shareholders’ health insurance
• Shareholders’ life insurance if the company is not the named beneficiary
• Group-term life insurance in excess of $50,000
• Third party sick pay (if the insurance company does not provide the W2)
• Non-qualified moving expense reimbursements
• Company provided parking
• Employer-paid education not related to the employee’s job
The IRS has taken the position that Shareholders’ health insurance will not be deductible unless it is reported on the W2. If reported correctly, the Shareholders will be allowed to take the deduction on their individual returns.
New reporting requirements related to the Affordable Care Act take effect for 2015. The healthcare information returns (Forms 1095-B, 1095-C, 1094-B, and 1094-C) are for applicable large employers (50+ full-time equivalent employees) or for employers who are self-insured, regardless of the number of employees.
In addition to reporting wages and taxable benefits to employees, the IRS requires reporting of payments to individuals, unincorporated businesses, and attorneys, on form 1099. This includes payments for repair/maintenance services, professional services, contract labor, rent, and interest. The threshold for filing is $600 for services and rent, $10 or more for interest, and all payments to attorneys. The IRS has increased the penalties for failure to file these returns. Disregarding this requirement could result in penalties as high as $250 per form.
All of the above forms are required to be given to the employee or vendor by January 31, 2016 and mailed to the IRS by February 28, 2016.
For more information on the above reporting requirements, please contact Lou Ann Taylor at 317-569-4181 ext. 255 and firstname.lastname@example.org or your Alerding CPA Group tax advisor.