Employment tax compliance: Year-end hot topics The Dbriefs

Employment tax compliance: Year-end hot topics The Dbriefs Global Mobility, Talent, and Rewards series Martin Rule, Senior Manager, Deloitte Tax LLP Nick Broomhead, Senior Manager, Deloitte Tax LLP Kevin Shimkus, Managing Director, Deloitte Tax LLP October 4, 2017

Agenda

• Why we care: employment tax risk in context • 2017 key developments

• Typical compliance challenges and how to handle them • Developing your end of year work plan

Copyright © 2017 Deloitte Development LLC. All rights reserved.

Employment tax compliance year-end hot topics

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Poll question # 1

What is your reason for attending this Dbriefs webcast? • I am concerned about employment tax exposure

• I want to confirm we are keeping up to date • I am new in the current role • I want to confirm my team is doing the right thing • I have an interest in this area and want to learn more • Other



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Employment tax risk in context



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Employment tax risk in context The impact of non-compliance in the enterprise

Reputational risk

Financial risk


Operational risk

Compliance risk


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Employment tax penalties A reminder for 2017 returns

Late information statements •$50–$260 per return ($3.2M max) •Intentional disregard— $530 (no limitation)


Incorrect returns

Late deposits

•20% penalty for incorrect withholding

•1–5 days—2%

•Up to 100% of under— withheld tax

•6–15 days—5% •15+ days—10%


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2017 updates New publications and guidance



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2017 updates—new publications and guidance Harvey, Irma, Jose and Maria

•

IRC Sec. 139—key requirements

•

Notice 2006-59—leave sharing plans

•

Notice 2017-49— employee benefits

The impact of disaster relief payments

•

Notice 2017-48—leave based donation payments



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Equity deposits Transaction and settlement dates • Effective on 09/05/2017, SEC Regulations require settlement within two days of transaction (T+2) • Therefore deposit due date should be made within one day of T+2.

FICA refunds New guidance for obtaining employee consents (Rev. Proc. 2017-28) • Effective for consents requested on or after June 5, 2017 • Consents must indicate that employee cannot authorize claim for refund of overpaid Additional Medicare Tax


Updates to key forms • USCIS revises Form I-9 (effective September 17, 2017) • Update to Forms 940 and 941 Schedule R (effective for 2018)

Dept of Treasury proposed regulations • If made final, regulations would allow voluntary use of truncated taxpayer identification numbers on Forms W-2, Wage and Tax Statement, required to be furnished to employees after December 31, 2018 (REG-105004-16)


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Key rates and limits Item Adoption assistance programs

2017

2018

13,570

Qualified Transportation Benefit (Commuting)

255

Qualified Transportation Benefit (Parking)

255

Medical savings account limit (Individual)

3,400

3,450

Medical savings account limit (Family)

6,750

6,900

Medical Savings account (catch-up 55 and Older)

1,000

1,000

Automobile Business Standard Mileage

53.5¢

Foreign Income Exclusion Health FSA Retirement Plan Limits (401(k) and 403(b) Retirement Plan Limits (401(k) and 403(b) Catch-up 50 and Older


102,100 2,600 18,000 6,000


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Where can you find more information?

• IRS website, specifically the electronic reading room https://www.irs.gov/privacy-disclosure/electronic-reading-room

• Health Savings Account (HSA) generally published in May of the previous tax year • Retirement plan COLA adjustments https://www.irs.gov/retirement-plans/colaincreases-for-dollar-limitations-on-benefits-and-contributions • Other inflation adjusted items generally published in October or November of previous tax year • Per Diem Rates https://www.gsa.gov/travel/plan-book/per-diem-rates/fy-2018per-diem-highlights • SIFL Rates https://www.transportation.gov/office-policy/aviation-policy/fareformulas-1979-present-sifl-0 • Social Security Wage Base www.ssa.gov



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2017 updates—new publications and guidance What legislation is in the pipeline?

Streamlining of tax code Tax reform

Business travelers H.R. 1393 mobile workforce State Income Tax Simplification Act of 2017 & S. 540: mobile workforce State Income Tax simplification Act of 2017


Healthcare Repeal and replacement of the affordable care Act

Workers & contractors

S. 1549 New GIG Act of 2017


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Poll Question # 2

What are the top 3 issues that have caused you significant problems at yearend?

• Expatriate compensation (i.e. tax payments, expenses etc.) • Fringe benefits valuation and timing of wage inclusion • Incentive compensation timing, wage inclusion and employment tax deposits • Multi-state withholding and reporting

• Employment tax compliance related to mergers and acquisitions • Don’t know/Not applicable



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Compliance approach to common payroll complexities



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Compliance approach to common payroll complexities Merger and acquisition issues

Asset acquisition Stock purchase • If entity continues operations and is not merged into another entity, employer continues to report and remit under its own FEIN


Types of mergers and acquisitions

• Typically, assets and employees are acquired

• Successor/predecessor relationship may exist if employees are acquired immediately after the assets are acquired


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Compliance approach to common payroll complexities Merger and acquisition issues

Wage base carry-forward

Closing state and local accounts and/or filing final returns

Mergers and acquisitions often create additional federal and state employment tax compliance requirements

941 Schedule D

W-2 reporting in asset purchase situations (Rev. Proc. 2004-53) Registration for tax accounts in new states and locals Data entry or import of new employee records

policies, process and systems integration/harmonization



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Compliance approach to common payroll complexities Merger and acquisition issues cont. When life is simple

When life is not so simple

Form 941 Q1

ER Form 941 Q1

ER Form 941 Q1

Form 941 Q2

ER Form 941 Q2

ER Form 941 Q2

Form 941 Q3

Predecessor Form 941 Q3

Form 941 Q4

Predecessor Form 941 Q4

Form W-3

Form W-3

Total 941 wages less than W-2 totals


Form W-3 Total W-2 less than 941 wage totals Employment tax compliance year-end hot topics

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Compliance approach to common payroll complexities Merger and acquisition issues cont.

The SSA and IRS have an agreement to exchange employment tax data

IRS CAWR Unit and SSA reconciliation process

The SSA shares Form W-2 data with the IRS and the IRS shares Form 941, 943, 944 (Form 94X) and Schedule H data with the SSA

Combined Annual Wage Reporting (CAWR)



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Poll Question # 3

Has your organization participated in a merger or acquisition in the last three years?

• Yes • No • Don’t know/Not applicable



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Compliance approach to common payroll complexities Complex fringe benefits

Equity based compensation

Meals Life insurance

Travel Employer provided automobiles

Awards and prizes Season tickets/ skybox Employer provided aircraft


Club memberships

Relocation Education assistance


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Compliance approach to common payroll complexities Forms 1099—things to watch out for:

Form 1099-MISC Compliance Missing information and errors may result in: • Backup withholding liabilities

• Harsh information statement penalties


• Reportable payments to attorneys • Reportable payments to healthcare service providers • Missing TINs • Incorrect name and TIN combinations


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Poll Question # 4

In the last three years has your organization been selected for either a federal or state employment tax audit?

• Yes • No • Don’t know/Not applicable



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Compliance approach to common payroll complexities Special payments

Nonqualified deferred compensation • 409A • Constructive receipt • Special timing rule

Equity-oriented compensation • Qualified stock option plans ‒ ESOP ‒ ISO • Nonqualified stock option plans

1 2

3 Payments to former spouse of employee

Wages paid after death


4 Employment tax compliance year-end hot topics

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Developing a year-end work plan

Update payroll calendar: • Identify cutoff dates for last 2017 pay cycle • Include end of year adjustment cycles

Prepare for new year payroll

Prepare work plan to: • Identify year-end team members both inside and outside the payroll department • List specific tasks with sequence priority • List responsibility for each team member • Provide due dates for each task • Monitor status of each task • Prepare year-end employee communication



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Question and answer



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Join us October 25 at 2 p.m. ET as our Tax Reform series presents:

US tax reform: What businesses and individual taxpayers should know



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Click the CPE icon in the dock at the bottom of your screen.

CPE Copyright © 2017 Deloitte Development LLC. All rights reserved.


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This webcast has been approved for 1 (General) recertification credit hour toward PHR, SPHR and GPHR recertification through the HR Certification Institute. To obtain the program ID, click on the HRCI link in the Downloads and Links window and submit your request. The use of this seal is not an endorsement by the HR Certification Institute of the quality of the program. It means that this program has met the HR Certification Institute's criteria to be preapproved for recertification credit.



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Contact information

Grace Melton

Martin Rule

Partner Deloitte Tax LLP [email protected]

Senior Manager Deloitte Tax LLP [email protected]

Connect with me on LinkedIn


Kevin Shimkus

Nick Broomhead

Managing Director Deloitte Tax LLP [email protected]

Senior Manager Deloitte Tax LLP [email protected]

Connect with me on LinkedIn Copyright © 2017 Deloitte Development LLC. All rights reserved.



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Where can you find more information?

• IRS website, specifically the electronic reading room https://www.irs.gov/privacy-disclosure/electronic-reading-room

• Health Savings Account (HSA) generally published in May of the previous tax year • Retirement plan COLA adjustments https://www.irs.gov/retirement-plans/colaincreases-for-dollar-limitations-on-benefits-and-contributions • Other inflation adjusted items generally published in October or November of previous tax year • Per Diem Rates https://www.gsa.gov/travel/plan-book/per-diem-rates/fy-2018per-diem-highlights • SIFL Rates https://www.transportation.gov/office-policy/aviation-policy/fareformulas-1979-present-sifl-0 • Social Security Wage Base www.ssa.gov



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This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.



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About Deloitte Deloitte refers to Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about to learn more about our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.


Employment tax compliance: Year-end hot topics The Dbriefs

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