Vision Payroll

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 11, nonqualified plans.

Box 11 shows the amount of distributions from a nonqualified plan or a nongovernmental §457(b) plan. These distributions should also be reported in box 1. Distributions from governmental §457(b) plans are not reported in this box.

Box 11 should show deferrals and earnings that became taxable for social security and Medicare purposes in 2008 because the deferrals and earnings were no longer subject to a substantial risk of forfeiture, but only if the amounts were for services before 2008 and no distributions were made in 2008. These amounts must also be reported in box 3, up to the $102,000 wage limit, and box 5.

Box 11 should not be used for deferrals that are included in box 3, up to the wage limit, and box 5 and that are for services performed in 2008.

Box 11 should also not be used when payments are made from a nonqualified plan and deferrals are included in box 3, up to the wage limit, and box 5. Employers should use Form SSA-131, Employer Report of Special Wage Payments. Generally the employer should report the amount from box 1 of Form W-2, plus any amounts deferred during 2008, less any payments from the nonqualified plan.

Assume Cameron retired during 2008. He earned $50,000 in wages, but deferred $35,000 of that amount in a nonqualified deferred compensation plan. Since he retired, he also received $75,000 in payments from the plan.

Since there are both distributions and deferrals in 2008, no amount is reported in box 11.

Box 11 should also not be used to report special wage payments earned in a prior year such as accrued sick pay or vacation pay. These amounts should be reported on Form SSA-131, however, so that the Social Security Administration may accurately calculate the recipient’s social security benefits.

The next topic in this continuing series will be Box 12, codes. Contact Vision Payroll with any questions on the 2008 Form W-2.

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 10, dependent care benefits.

Box 10 shows the amount paid or incurred by the employer under §129 of the Internal Revenue Code (IRC) for dependent care assistance provided to the employee if the assistance is furnished pursuant to a “dependent care assistance program” under that section. This box should include amounts paid or incurred for dependent care assistance in an IRC §125 (cafeteria) plan. The fair market value of any employer-sponsored or employer-provided day care facilities should also be included. Even though there is an annual exclusion limit of $5,000, the total amount paid or incurred must be reported in box 10. Amounts over $5,000 must also be reported in boxes 1 and 5 and box 3, subject to the wage limitation. Amounts that cannot be excluded for other reasons such as benefits for highly compensated employees in plans described in IRC §129(d), must also be reported in boxes 1 and 5 and box 3, subject to the wage limitation.

The next topic in this continuing series will be Box 11, nonqualified plans. Contact Vision Payroll with any questions on the 2008 Form W-2.

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 9, advance EIC payment.

Box 9 shows the amount of any advance EIC (earned income credit) payment paid to the employee. Employees must meet four criteria and file Form W-5, Earned Income Credit Advance Payment Certificate in order to receive advance EIC payments. For 2008, the maximum advance EIC was $1,750. Employees entitled to additional EIC are eligible to receive it when filing Form 1040, US Individual Income Tax Return.

The next topic in this continuing series will be Box 10, dependent care benefits. Contact Vision Payroll with any questions on the 2008 Form W-2.

This week’s question comes from Greg, a part-time accounts payable clerk. I made almost the same amount of money in 2008 as I did in 2007, but the amount of my federal income tax (FIT) withheld is significantly lower. Why did my FIT withheld go down? There are several reasons why your FIT withheld could be significantly lower, even though your income was almost the same.

1. Inflation creep. Each year, as inflation reduces the value of the dollar, tax tables in Publication 15 (Circular E) are adjusted so that less tax would be withheld on the same amount of income. This is to adjust for the reduced buying power of the same dollar amount of income.
2. Reduced income. At certain low-income levels, no tax is withheld if the withholding allowances claimed are greater than zero. Even FIT withholding of a few dollars each week can add up to a few hundred-dollar difference at year-end compared to no withholding at certain low-income levels.
3. Increased withholding allowances. Many employees file a revised Form W-4, Employee’s Withholding Allowance Certificate or Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. If the number of withholding allowances claimed increases, the amount of FIT withheld will decrease. Instead of receiving a big refund when a Form 1040 is filed, the employee receives a small net pay increase each week. Some employees also file Form W-4 claiming exemption from all FIT withholding.
4. Claiming Earned Income Credit. Many employees file a new or revised Form W-5, Earned Income Credit Advance Payment Certificate. As in the case of increased withholding allowances, claiming an advance EIC payment will increase net pay received each week, but could reduce the amount of FIT withheld.
5. Increase in pre-tax deductions. Employees who increase the amount of a §125 election or elect to contribute more money to a pre-tax retirement plan such as a SIMPLE plan or §401(k) plan, could have a significantly reduced amount of FIT withheld on the same amount of gross pay. Since those amounts are deducted before FIT withholding is calculated, the FIT deduction should be reduced.

Employees should work with their CPA to project their FIT liability for the current year then assess their progress toward meeting that liability each quarter. If the projected FIT withholding be less than the annualized projected liability a revised Form W-4 or Form W-5 should be filed or the need to pay quarterly estimated tax payments using Form 1040-ES should be considered. Employers should update the allowances claimed by logging in to their company file or providing Vision Payroll with the updated information.

According to the US Department of Labor, in the week ending January 17, the advance figure for seasonally adjusted initial claims was 589,000, an increase of 62,000 from the previous week’s revised figure of 527,000. The 4-week moving average was 519,250, unchanged from the previous week’s revised average of 519,250.

Employers know that it’s important to keep personnel files, but do you know the answers to these questions?

1. What should go into an employee’s personnel file?
2. What shouldn’t go into an employee’s personnel file, but still must be kept on file?
3. What are the best practices in keeping the information needed both in and out of the employee’s personnel file both organized and accessible to those that need it, but not to those who don’t?

Learn the answers to these questions and more in this month’s HRCast, a recording provided by our team of HR Pros and available exclusively on MyHRSupportCenter. Visit MyHRSupportCenter regularly not only for our HRCasts, but also to get late-breaking compliance alerts, best practices to implement, and HR tools to use every day. If you’re not yet signed up or would like a free trial of MyHRSupportCenter, contact Vision Payroll today.

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 8, allocated tips.

Box 8 shows the amount of allocated tips. Large food and beverage establishments use Form 8027, Employee’s Annual Information Return of Tip Income and Allocated Tips to determine the amount of tips to report in Box 8. A large food and beverage establishment meets all three of the following criteria:

1. Food or beverage is provided for consumption on the premises.
2. Tipping is a customary practice.
3. More than 10 employees who work more than 80 hours were normally employed on a typical business day during the preceding calendar year.

The amount in this box is not to be reported in Boxes 1, 3, 5, or 7.

The next topic in this continuing series will be Box 9, advance EIC payment. Contact Vision Payroll with any questions on the 2008 Form W-2.

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 7, social security tips.

Box 7 shows the amount of tips reported by employees. In many situations, the cash wages paid are insufficient to collect the entire amount of social security and Medicare tax. Reported tips must still be shown in this box, even if social security or Medicare tax was not withheld on them. For 2008, the combined total of Boxes 3 and 7 cannot exceed $102,000. The reported tips should be included with amounts reported in Box 1, wages, tips, other compensation and Box 5, Medicare wages and tips. Since social security benefits are based on the amount of social security tips reported to the Social Security Administration (SSA), it is important that employees periodically review their social security earnings record and provide the SSA with the Form W-2 to update any incorrectly posted earnings records.

The next topic in this continuing series will be Box 8, allocated tips. Contact Vision Payroll with any questions on the 2008 Form W-2.

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 6, Medicare tax withheld.

Box 6 shows the total amount of employee Medicare withheld, including the amount withheld on tips. It does not include any employer contribution toward Medicare on the employee’s behalf. The 2008 rate was 1.45% and unlike social security, there is no taxable wage base. Therefore, there is no upper limit to the amount entered in this box. If the employer paid the employee’s share of such taxes rather than withholding them, the tax must be grossed up and included in boxes 1, 3, and 5.

The next topic in this continuing series will be Box 7, social security tips. Contact Vision Payroll with any questions on the 2008 Form W-2.

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 5, Medicare wages and tips.

Box 5 shows the total amount of wages subject to Medicare tax. For most employees, this amount equals the sum of boxes 3 and 7, with one exception. There is no limit on the amount of Medicare wages as there is with social security wages. Additionally, depending on the date of hire, some governmental employees may have Medicare wages, but not social security wages.

The next topic in this continuing series will be Box 6, Medicare tax withheld. Contact Vision Payroll with any questions on the 2008 Form W-2.