The year 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 are 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 Shareholder will be allowed to take the deduction on his/her individual return.
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 now required to be given to the employee or vendor by January 31, 2017 and also mailed to the IRS and Social Security Administration by January 31, 2017. This is a change from prior years.
For more information on the above reporting requirements, please contact Lou Ann Taylor at firstname.lastname@example.org or your Alerding CPA Group tax advisor at 317-569-4181.
This post was written by:
Lou Ann Taylor, CPA, CGMA
Lou Ann is a Director of tax for Alerding CPA Group where she provides tax advice, planning and compliance. Her clients include manufacturing, warehousing and distribution, retail and convenience stores, specialty contractors and manufacturer’s representatives.
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