Year-End Guide - Paychex Time and Attendance Client Training

Year-End Guide
This training introduces you to some common entries that are handled at the end
of the year. You may have other Cash or Non-Cash Fringe Benefits that need to be
reported. IRS Publication 15-B is a detailed listing of all of the different benefits
that need to be reported.
Tax Considerations
Many Fringe Benefits that are reported have taxes that are either withheld from
the employee or are liable from the company. Some of these may also have certain
agencies where the Fringe Benefit may be exempt for taxes. To make it even more
complicated, state agencies may differ on how they handle the taxability of certain
Fringe Benefits. Don’t worry – Paychex can help in the setup of your necessary
codes and tax agencies.
Please contact your tax
advisor or CPA for additional
assistance in determining proper
withholding taxes.
There will be some things that you will need to decide for your specific situations.
For instance – will there be any federal income tax withheld from the value
reported for an employee using a company car for personal use? This benefit is
taxable, but that does not mean that you are required to withhold taxes. Paychex is
not able to offer advice on how to handle those situations.
When to Record Benefits
You have some flexibility in the reporting of your Fringe Benefits throughout the
year. For example, Fringe Benefits can be recorded every pay period, once per
month, once per quarter, or annually.
If you record these items more frequently than annually, there are some items to
remember:
• You do not need to report benefits for different employees during the
same pay period.
• You do not need to report the specific dates of the benefit receipt or
payment to the IRS.
• You do not need to follow the same reporting period as you had the prior
calendar year.
There are several other items
you may want to consider as
you are preparing to report
Fringe Benefits. For more details,
reference IRS Publication 15-B
Employer’s Tax Guide
to Fringe Benefits.
• You may treat a benefit as paid on more than one date, even if the full
amount of the benefit was provided during one pay period.
Year-End Guide Paychex Flex
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Manual or Net-to-Gross Checks
When you report Fringe Benefits, it is usually best to report the benefit amount
with an employee’s regular wages if possible. There may be situations which make
this impossible – termination of employment, employee on leave, etc. If you are
not able to report a Fringe Benefit with an employee’s regular wages, you may
need to “gross up” the wages (calculate the net-to-gross amount) to cover the
necessary taxes to be withheld from the employee.
EXAMPLES
You are getting ready to process your final payroll of 2014. $1000 needs to be
reported as the value of personal use of a company provided car. This employee
was terminated on July 1.
1.
If the employee is not over the OASDI wage base ($117,000 for 2014),
additional regular wages would need to be added to allow the withholding
of OASDI and Medicare.
To figure the amount of additional wages:
Start with the amount of the benefit: $1000
Divide the benefit by 0.9235 (this represents 100% - 6.2% - 1.45%)
Take the calculated amount: $1082.84
Subtract the benefit amount: $82.84 remains
This $82.84 represents the additional regular wage amount that needs to be
entered to cover the total FICA taxes ($67.14 in OASDI, $15.70 in Medicare).
Year-End Guide Paychex Flex
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EXAMPLES - CONTINUED
2.
If the employee is over the OASDI wage base ($117,000 for 2014), additional
regular wages would need to be added to allow the withholding of
Medicare only.
To figure the amount of additional wages:
Start with the amount of the benefit: $1000
Divide the benefit by 0.9855 (this represents 100% - 1.45%)
Take the calculated amount: $1014.71
Subtract the benefit amount: $14.71
3.
This $14.71 represents the additional regular wage amount that needs to be
entered in to cover the total FICA taxes ($14.71 in Medicare only).
If the employee has more than $200,000 in wages, the supplemental
Medicare rate of 0.9% must also be factored in to your gross-up
calculations.
To figure the amount of additional wages:
Start with the amount of the benefit: $1000
Divide the benefit by 0.9765 (this represents 100% - 2.35%)
Take the calculated amount: $1024.07
Subtract the benefit amount: $24.07
This $24.07 represents the additional regular wage amount that needs to be
entered in to cover the total FICA taxes ($24.07 in Medicare only).
You do not need to “gross up” for any employee who is receiving regular
wages on the same check as the Fringe Benefit unless the regular wages
would not cover the taxes.
Year-End Guide Paychex Flex
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Group-Term Life (GTL) Insurance
Group-Term Life (GTL) Insurance is taxable for the imputed value of coverage in
excess of $50,000. The “imputed value” is computed based on actuarial tables that
place a value on each $1000 over $50,000 in insurance coverage. The monthly
value is based on an employee’s age as of December 31 of the current calendar
year.
ENTER THE FULL VALUE ON A REGULAR CHECK
In order to use this method, you will need to reference the actuarial tables found
on the IRS website (also shown here). These tables may change from year to
year. You also need to know the employee’s date of birth and the full value of his
insurance policy.
To calculate the annual value, first, determine the employee’s age as of December
31 of the current year. Next, determine how many $1000 worth of coverage the
policy is over $50,000.
Example for a 42-year-old employee with a total policy of $75,000:
25
.10
$2.50
x
12
$ 30.00
x
(number of thousands over $50,000)
(monthly cost based on age)
(total monthly taxable)
(months)
(total benefit amount to be entered)
This $30.00 represents the annual imputed value that needs to be reported to
be included on an employee’s Form W-2 (assuming the employee was active the
entire year). If the employee was not active the entire year, calculate the actual
number of months instead of 12.
Age
Monthly Cost
Under 25
$0.05
35 - 39
$0.09
25 - 29
30-34
40 - 44
45 - 49
50 - 54
55 - 59
60 - 64
65 - 69
70 and over
$0.06
$0.08
$0.10
$0.15
$0.23
$0.43
$0.66
$1.27
$2.06
Rates are subject to change.
Since GTL is taxable for FICA, it must be entered with wages or gross up the value.
Watch these video demonstrations to learn how to enter GTL in Paychex Flex:
• Entering Group Term Life Insurance Without Wages - IRS Preferred
Method
• Entering Group Term Life Insurance With Wages - FIT & SIT reportable
but not withheld
Year-End Guide Paychex Flex
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2% S Corp Insurance
S Corp Insurance is taxable for federal income tax, but exempt from FICA tax. In
Paychex Flex, S Corp Insurance is considered an earning code.
Since S Corp Insurance is exempt from FICA taxes, this makes it one of the easiest
benefits to enter. S Corp Insurance does NOT need to be “grossed up” to cover any
taxes. Therefore, the entry may be done on either a check with other wages or on a
separate manual check.
Contact your branch
representative to ensure you have
the necessary codes available.
Watch these video demonstrations to learn how to enter S Corp Insurance in
Paychex Flex:
• Entering S CORP Insurance Without Wages - FIT & SIT reportable but not
withheld
• Entering S CORP Insurance With Wages - FIT & SIT reportable but not
withheld
Personal Use of Company Car
Personal Use of Company Car (PUCC) or other similar Non-Cash Fringe Benefits
are taxable for all federal agencies. State agencies may handle taxability differently.
In Paychex Flex, PUCC is considered an earning code.
Contact your branch
representative to ensure you have
the necessary codes available.
These dollar amounts are sometimes quite large – depending on the method
of calculating the value of the benefit. You may wish to block federal and state
income tax withholding from being withheld, or you may wish to spread the
benefit over multiple pay periods.
Since PUCC is taxable for FICA, it must be entered with wages or “grossed up.”
Watch these video demonstrations to learn how to enter PUCC in Paychex Flex:
• Entering Personal Use of Company Car Without Wages - IRS Preferred
Method
• Entering Personal Use of Company Car With Wages - Block FIT and SIT
Year-End Guide Paychex Flex
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Qualified and Non-qualified Moving Expenses
For tax purposes, the Internal Revenue Service (IRS) classifies moving expenses
into qualified and non-qualified reimbursements. Qualified reimbursements
paid to the employee through Paychex Flex are not taxable to the employee,
but the amount must be reported on the employee’s Form W-2. The following
types of expenses are considered qualified moving expenses if they meet the IRS
distance and time tests and conform to the rules for accountable business expense
reimbursement plans:
• Reasonable costs associated with the transportation and storage of
household goods and personal effects.
• Travel and lodging payments for expenses associated with moving from
the old residence to the new residence made by the employee and the
employee’s family. Meals are not included.
Non-qualified reimbursements are taxable income to the employee and must be
paid through payroll and included in the employee’s income and taxed the same as
the employee’s regular salary or wages.
Watch these video demonstrations to learn how to enter qualified and nonqualified moving expenses in Paychex Flex:
• Entering Qualified Moving Expenses Without Wages
• Entering Non-Qualified Moving Expenses Without Wages - IRS Preferred
Method
• Entering Non-Qualified Moving Expenses With Wages - FIT SIT
reportable but not withheld
Disability (Third-Party Sick Pay)
Third-Party Sick Pay is used to record any Short-Term and Long-Term Disability
payments an employee received from a third party – typically an insurance
company. You should receive documentation from the insurance company
summarizing the payments that they have made and any taxes that they withheld.
For any payments made in the current calendar year, the insurance company
has until January 15 of the next year to report those payments to you. Since this
is after our cutoff time, it is crucial that you provide any additional information
immediately to Paychex to ensure proper reporting on Forms W-2 and other tax
returns.
Year-End Guide Paychex Flex
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Disability (Third-Party Sick Pay) - continued
Since the insurance company has already collected the taxes from the employee
and made those payments, your responsibility is to report the information in
order for the amount to be reported on tax returns as well as to calculate any
employer taxes that may be liable.
Bonus Checks
Bonus payments are often recorded at the end of the year for special performance
incentives, holiday payments, and other special purposes. There are many things
to consider and many options that you have if you will be processing a Bonus
Check through Paychex Flex.
Items to consider:
• Will the Bonus Checks be reported with a regular payroll, or will it be a
separate payroll run?
• If the amounts are reported with regular payroll, are they done on
separate checks?
• If the amounts are reported with regular payroll on the same check, how
are federal and state income tax handled?
• If the amounts are done on separate checks, what tax frequency will be
used for federal and state income taxes?
• Will the checks be Live, or will they be Direct Deposit?
• If they are Direct Deposit, will the net amount be split between multiple
accounts?
• Do I know the Gross amount, or the Net amount of the check?
• If the amount is reported with a separate check, should there be any
items withheld from the check besides taxes?
Depending on your answers to those questions, you will have different options for
recording the Bonus Checks within Paychex Flex.
If the amounts are reported on the same check with regular wages and there will
be nothing adjusted for taxes, no special entry is needed – just enter the amount in
the Bonus column in Payroll.
If the amounts are reported on separate checks or on a separate payroll run,
consider setting up a template when you are beginning a new pay period. Defaults
may be set up to help ensure the accuracy of the checks being processed.
Year-End Guide Paychex Flex
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Bonus Checks - continued
Contact your branch representative for assistance with setting up templates
or other options in Paychex Flex. Defaults to consider are: blocking recurring
earnings or deductions, such as Insurance, Dependent Care, HSA, FSA, Misc
Deductions, or specifying special tax rates. You may also be required to calculate
401(k) or other retirement plan contributions on Bonus earnings.
You may change the Frequency for these separate checks to calculate federal and
state income tax on a monthly, quarterly, or annual basis. You may also select
specific percentages or flat amounts that would apply to all employees. You can
also choose to completely block federal and state income tax. These options are
very important to code properly. Contact your branch representative with any
questions you have.
Summary
This training material is meant to introduce you to some common entries that
are handled at the end of the year. You may have other Cash or Non-Cash Fringe
Benefits that need to be reported. IRS Publication 15-B is a detailed listing of
all the different benefits that need to be reported. If you need any Earning and
Deduction codes created to report these items, please contact your branch
representative.
You have some flexibility in how and when benefits and other payments are
recorded in Paychex Flex. If you need advice on how and when you report your
benefits, please contact your company tax advisor or accountant.
Unless you are following the special accounting rules as discussed in Publication
15- B, all entries should be done on or before your last check date of the current
year, if possible, to avoid penalties and fees.
As a reminder, please forward next year’s state unemployment insurance rate and
state withholding deposit frequency to your branch representative as soon as you
receive that information from your state agency.
Year-End Guide Paychex Flex
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