Participants of our 2013 webcast, Employment tax year in review, submitted a record number of questions, reflecting the volume and complexity of the many employment tax developments. Here we feature the panelists’ top 10.
1. What is the deadline for filing a protective FICA refund claim?
For most employers, it is too late to file protective FICA refund claims for tax year 2009. The deadline for submitting a claim for tax year 2010 is April 15, 2014. Employers should consider filing claims for all open quarters through 2013 as soon as possible.
2. Are government agencies also potentially eligible for FICA refunds on severance pay?
Yes, the potential for FICA refunds applies to any employer that has made qualified severance payments.
3. Does the type of termination determine your potential eligibility for a FICA refund?
Yes, the nature of the severance payments you make determines whether the FICA refund potential exists. The severance pay must have been provided as the result of an involuntary reduction in force, plant closing or similar event. The IRS also may require that you have a plan or policy supporting the payments
Additional Medicare tax
4. Can the employer withhold more additional Medicare tax than it is required to?
No, the employer can withhold only 0.9% on wages in excess of $200,000. If employees believe they will owe more than this, the IRS suggests that they submit a Form W-4 requesting additional federal income tax withholding. Excess federal income tax withholding, if any, can be applied to additional Medicare tax the taxpayer owes.
5. What form do employees use to report the additional Medicare tax?
Employees who have had the additional Medicare tax withheld from their wages will be required to file new Form 8959 with the Form 1040. The draft form is available here.
Unemployment insurance (new UI integrity laws)
6. Are employers required to respond to UI claim notices, even if they will not protest the claim?
Employers are required to provide all of the information necessary for the state to determine the individual’s eligibility for UI benefits.
Affordable Care Act
7. Are employers required in 2013 to report the aggregate cost of health insurance on Form W-2?
Yes, this requirement has not changed. If an employer filed 250 or more Forms W-2 in 2012, it is required to report the aggregate cost of health insurance in box 12, code DD.
Same-sex spousal benefits
8. What does “state of celebration” mean?
The state of celebration is where the employee was married. For instance, let’s say that a Louisiana resident wants to marry his same-sex partner. Louisiana doesn’t allow same sex partners to marry. In order to get married, the Louisiana resident would have to go to a state that will allow the marriage (e.g., Minnesota). In this example, Minnesota is the state of celebration.
9. Is Form W-2, box 16 larger than Form W-2, box 1 in states that don’t recognize same-sex marriage?
Generally, yes, but it depends. State income tax rules govern whether state income tax applies to same-sex spousal benefits, not a state’s marriage license rules. Missouri, for instance, prohibits the marriage of same-sex couples; however, same-sex married couples that file joint federal income tax returns are also required to file joint Missouri income tax returns.
10. Is the state income tax treatment of same-sex spousal benefits based on the resident or work state?
If the employer is responsible for withholding state resident income tax, it will need to properly account for same sex spousal benefits in both the resident and work state. The situation may arise that the resident state excludes same sex spousal benefits from income, but the work states does not, and vice versa.
Visit Employment tax year-end planning essentials on ey.com to learn more.