Welcome back from the Thanksgiving holiday! As we approach the end of another year, there are several tax-related employee benefits items you will want to review with your payroll colleagues to make sure they are ready to provide your employees with accurate financial information for their 2013 tax returns. Ideally most of this will already have been put in place with the help of your payroll vendor so that little additional work should be required. For anything that is already in place, we can assist you with determining the next steps to ensure full compliance before the end of 2013.
- Excess Group Term Life - The IRS views any employer sponsored term life benefit over $50,000 as an economic benefit (aka imputed income) to the employee. The monthly economic benefit is determined by applying the IRS Premium Table 2-2 (page 13 of IRS publication 15-b) to the amount of group term life insurance in excess of $50,000 and adding that amount to an employee's taxable income (including Social Security and Medicare). This only applies to employer-paid coverage, not to any voluntary coverage that the employee pays for themselves. If the taxable amount hasn't been added to the employee's taxable income during the year, the amount will need to be calculated and added to their final paycheck or to their 2013 W-2 in full.
- Domestic Partner Imputed Income - Similar to the above, any amount paid by an employer towards health benefits (including dental and vision) for an employee's domestic partner is considered an economic benefit to the employee. The amount may be calculated by multiplying the monthly premium for the domestic partner's coverage by 12 (be sure to subtract the amount paid for the employee's coverage as well as the amount the employee contributes towards the premium each month). This amount will need to be added to the employee's W-2 if it hasn't already been taxed throughout the year. Also note that if there is an employee contribution for the domestic partner, the portion of the premium for the domestic partner must be applied as a post-tax contribution.
- W-2 Information Reporting of Employer Sponsored Health Coverage - As required by the Affordable Care Act, employers who are issuing 250 or more W-2s for 2013 will need to provide the total annual cost of an individual's health care insurance premiums in Box 12 of their W-2 form. The figure should include the cost of medical coverage (employer and employee costs combined); the cost of EAP coverage if you charge a separate COBRA premium for it; and the value of any employer FSA contributions. You may also choose to include the costs for other types of coverage. The complete list of required and optional items is at http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage. This information reporting requirement is meant to provide the employee with comparable consumer information about the cost of their health care coverage.
Please let us know if you have any questions about these processes or need any support with these calculations. We recommend taking action on these items, as necessary, at the beginning of December to ensure plenty of time for accurate reporting. Check with your payroll vendor now for any specific filing deadlines they may have as missing them could result in expensive correction fees.
- Tax Treatment of Health Coverage for Same-Sex Spouses - Following the Supreme Court ruling that same-sex spouses receive equal protection under federal law, you will want to make corrections for any overpayment of 2013 income and payroll taxes, (including the employer's portion of payroll taxes), if an employee had the cost of health coverage for their same-sex spouse included in their gross income during the past year. The IRS has issued a simplified procedure for making these corrections. You may elect to use one of the two simplified processes in Notice 2013-61 at http://www.irs.gov/pub/irs-drop/n-13-61.pdf to correct any overpayments. (Please note there is a separate process for claiming refunds for earlier years that is outlined in the same Notice.)