by Lexi Garcia | Feb 28, 2023 | Blog
QUESTION: For 2023, an employee elected $2,400 of health FSA coverage under our calendar-year cafeteria plan, which is funded solely through employee salary reductions and does not provide for carryovers or include a grace period. The employee has already incurred medical expenses equal to this amount in 2023 and wants to be reimbursed for the expenses now, even though she has only made health FSA salary reductions of $400 to date. Do we have to reimburse all of these expenses right away, or can we limit reimbursements to the amount our employee has already contributed and ask her to resubmit the remaining expenses as additional contributions are made?
ANSWER: Your employee must be reimbursed for all of her expenses now, assuming that the expenses are otherwise eligible for reimbursement (e.g., they are for medical care incurred during the current period of coverage, and appropriate substantiation has been provided). That’s because IRS requirements for health FSAs include a “uniform coverage” rule under which the maximum amount of reimbursement must be available at all times during the plan year (or other period of coverage), reduced only for any prior reimbursements for the same period. Reimbursement is deemed “available” under the uniform coverage rule if claims are paid at least monthly, or when an employee’s submitted claims reach a reasonable plan minimum (e.g., $50). Thus, reimbursements cannot be restricted to the amount of the employee’s contributions.
The uniform coverage rule also prohibits accelerating an employee’s salary reductions based on health FSA claims submitted or paid. Note that the uniform coverage rule does not apply to DCAPs, so reimbursements under a DCAP can be limited to the amount that has been contributed, less expenses already reimbursed.
Source: Thomson Reuters
by admin | Dec 22, 2022 | Blog
The IRS has issued the final versions of Publication 15 (Circular E, Employer’s Tax Guide) and Publication 15-T (Federal Income Tax Withholding Methods) for use in the 2023 tax year.
Publication 15: This publication explains the tax responsibilities as an employer regarding the requirements for withholding, depositing, reporting, paying, and correcting employment taxes. The publication also explains the forms an employer must give to its employees, those employees must provide, and those the employer must send to the IRS and the Social Security Administration (SSA).
Publication 15-T: Publication 15-T supplements Publication 15 and Publication 51 (Agricultural Employer’s Tax Guide). It describes how to figure withholdings using the wage bracket method or percentage method.
Qualified sick/family leave in 2023: Publication 15 notes that the rate of Social Security tax on taxable wages, including qualified sick leave wages and qualified family leave wages paid in 2023 for leave taken between March 31, 2021 – October 1, 2021, is 6.2% each for the employer and employee or 12.4% for both.
However, qualified sick leave wages and qualified family leave wages paid in 2023 for leave taken between March 31, 2020 -April 1, 2021, are not subject to the employer share of Social Security tax; therefore, the tax rate on these wages is 6.2%. The 2023 Social Security wage base limit is $160,200.
Payroll research tax credit: For tax years beginning before January 1, 2023, a qualified small business may elect to claim up to $250,000 of its credit for increasing research activities as a payroll tax credit. The Inflation Reduction Act of 2022 (the IRA) increased the election amount to $500,000 for tax years beginning after December 31, 2022.
The election and determination of the credit amount that will be used against the employer’s payroll taxes are made on Form 6765 (Credit for Increasing Research Activities). The amount from Form 6765, line 44, must then be reported on Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities).
Starting in the first quarter of 2023, the payroll tax credit is first used to reduce the employer share of Social Security tax up to $250,000 per quarter and any remaining credit reduces the employer share of Medicare tax for the quarter (any remaining credit is carried forward to the next quarter).
Forms and publications discontinued forms after 2023: Form 941-SS (Employer’s Quarterly Federal Tax Return) and Publications 80 and 179.
Source: Thomson Reuters
by admin | Nov 29, 2022 | Blog
During the first week of November, the IRS announced 2023 contribution limits for all Flexible Spending Account (FSA) plans. Below is an overview of the limit increases across all the types of FSAs except for Dependent Care FSAs, which remain the same at $5,000 per year.
Health Care Flexible Spending Account (HCFSA)
This account provides employees the option to set aside money on a pre-tax basis to pay for eligible medical, dental and vision expenses. The maximum contribution limit is set to increase from $2,850 to $3,050. This new amount will also apply to Limited Purpose FSAs.
Carryover Limit
The FSA Carryover allows employers the ability to transfer a maximum amount of remaining FSA balances from a current plan year for use in the following plan year. This is available for Health Care and Limited Purpose FSAs only. The limit increase to this account is now $610, compared to 2022’s limit of $570.
Commuter Benefits
This account helps employees pay for certain parking, mass transit and/or vanpooling expenses using pre-tax dollars. The contribution limits will increase from $280 to $300.
Adoption Assistance
An Adoption Assistance FSA assists employees in paying for adoption expenses such as agency fees and court costs. The contribution limit for this account is now $15,950, up $1,060 dollars from the 2022 amount ($14,890).
For more information about this major change and how it may impact you, read our latest handout.
by admin | Oct 20, 2022 | Blog
The IRS has announced the penalty amounts for failure to file correct 2023 information returns, and failure to furnish correct 2023 payee statements in 2024.
IRS Code 6721 imposes a penalty on a taxpayer for failing to file a correct information return (any 1099 series form or a Form W-2). Code 6722 imposes a penalty for failure to furnish a payee statement (employee’s copy of Form W-2, recipient’s Form 1099) on time, failure to include all information required to be shown on the statement or including incorrect information. The maximum penalty is lower if the taxpayer is a small business. A small business is a taxpayer with average annual gross receipts for the most recent three tax years of $5 million or less.
The amount of the penalty depends on when the return or statement is corrected.
- The penalty on 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, that are corrected within 30 days, is $60 per return/statement (currently $50), up to a maximum penalty of $630,500 ($220,500 for small businesses). The maximum penalty is $588,500 on 2022 information returns and payee statements ($206,000 for small businesses).
- The penalty on 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, that are corrected later than 30 days after the due date but before August 1st, is $120 per return/statement (currently $110), up to a maximum penalty of $1,891,500 ($630,500 for small businesses). The maximum penalty is $1,766,000 on 2022 information returns and payee statements ($588,500 for small businesses).
- The penalty on 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, that are not corrected by August 1 (or if no return or statement is filed at all), is $310 per return/statement ($290 for 2022 information returns), up to a maximum penalty of $3,783,000 ($1,891,500 for small businesses). The maximum penalty is $3,532,500 on 2022 information returns and payee statements ($1,177,500 for small businesses).
Intentional disregard penalty: The intentional disregard penalty for 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, is $630 per return/statement, or if greater, 10% of the amount required to be shown on the return/statement (without any limit on the maximum penalty in a calendar year). The intentional disregard penalty for 2022 information returns required to be filed in 2023, and 2022 payee statements required to be furnished in 2023, is $580 per return/statement, or if greater, 10% of the amount required to be shown on the return/statement (without any limit on the maximum penalty in a calendar year).
Lastly, for tax returns filed in 2023, the minimum penalty for failure to file a tax return within 60 days of the due date is $485 ($450 for tax returns filed in 2022).
Source: Thomson Reuters
by admin | Sep 26, 2022 | Blog
The IRS has updated Notice 931 (Deposit Requirements for Employment Taxes) to include the tax deposit rules for the 2023 year.
The deposit schedule employers must use (i.e., monthly or semi-weekly) is based on the total tax liability they reported during the lookback period. For employers filing Form 941 (Employer’s Quarterly Federal Tax Return), an employer’s deposit schedule for 2023 is based on the lookback period beginning July 1, 2021 and ending June 30, 2022. An employer reporting $50,000 or less of Form 941 taxes for the lookback period is a monthly depositor, and an employer reporting more than $50,000 of Form 941 taxes is a semiweekly depositor.
An employer with a Form 941 tax liability of less than $2,500 during the current or preceding quarter, who does not incur a $100,000 next-day deposit obligation during the current quarter, is not required to make monthly or semiweekly deposits if the taxes are paid in full with a timely filed return. An employer accumulating a tax liability of $100,000 or more on any day during a deposit period must deposit the tax by the next “business day,” regardless of whether the employer is a monthly or semiweekly depositor. A “business day” is any day other than a Saturday, Sunday, or a “legal holiday.” The term “legal holiday” means any legal holiday in the District of Columbia.
The IRS considers a new employer’s tax liability to be zero, which makes a new employer a monthly depositor for the first year of business.
The lookback period for annual return filers (Forms 943, 944, 945, or CT-1) is the calendar year preceding the previous year. The lookback period for 2023 tax deposits is the 2020 tax year.
Adjustments: The lookback period is based on the tax liability as originally reported. If an employer subsequently files Form 941-X, 943-X, 944-X, 945-X, or CT-1X to correct errors on the original return, the corrections are not taken into consideration for purposes of the lookback period computation.
Source: Thomson Reuters
