Transcript of Payroll Amendments and Corrections Brandon Le Du brandon.j.le.du@us.pwc.com California Payroll...
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- Payroll Amendments and Corrections Brandon Le Du
brandon.j.le.du@us.pwc.com California Payroll Conference September
11 and 12, 2014
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- Agenda I. Payroll adjustments and the tax perspective II. Tax
amendments III. Payroll notices and inquiries IV. Payroll tax
audits
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- Learning Objectives I. Payroll adjustments and the tax
perspective Timing of payroll adjustments and the impact on payroll
tax filings Managing and tracking payroll adjustments II. Tax
amendments Learn the benefit and process for amending quarterly
returns Learn potential best practice for tracking and amending
quarterly returns III. Payroll notices and inquiries Track
compliance notices and identify root cause Identify common payroll
compliance notices and resolution Learn how to resolve and prevent
future payroll tax notices IV. Payroll tax audits Introduction to
recent topics in payroll tax audits
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- Payroll Adjustments
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- Prior-quarter adjustments - made to taxes and/or wages after
the original quarterly tax return was filed. For Year-End, these
adjustments are captured in the W-2s (no W-2c is needed) For
Quarterly tax filings, these adjustments are not captured in the
original tax returns. Quarterly tax filings and Payroll are now
out-of-balance with the W-2s Q1-Adjusted Payroll Q2 - PayrollQ3 -
PayrollQ4 - Payroll Tax Return Implication Quarterly tax returns
and wage detail (i.e., CA, NY) need to be amended to balance with
the employee W-2s Company will likely be faced with state penalties
for underpayment federal allows for a penalty and interest free
adjustment
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- Payroll Adjustments Prior-year adjustments - made to taxes
and/or wages after year-end. For Year-End, these adjustments are
not captured in W-2s (a W-2c is needed) For Quarterly tax filings,
these adjustments are not captured in the original tax returns.
Quarterly tax filings and Payroll are now out-of-balance with the
W-2 and W-2cs Tax return implication Amended returns bring
quarterly filings into balance with the W-2C for the employee May
require amendment to each quarter, due to wage detail that is
included with certain state and local tax returns May require
amendment to each quarter, to avoid causing negative wages in a
certain quarter. Important to consider statute of limitations most
states 3 years. 2013 Adjusted Payroll 2014 Payroll
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- Payroll Adjustments Tracking Changes Prepare a spreadsheet
tracker of payroll corrections by employee and check dates Change
in subject wages and withholding for the respective tax Root cause
and source of the correction
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- Tax Amendments
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- Current Year Amendments Reimbursement of employee income tax
withholding and FICA tax are permitted The employer corrects the
quarterly returns for each period Current year adjustments are
captured in the W-2 (no W-2c is needed in the current year) Prior
Year Amendments income tax withholding is not permitted (Exception
for administrative errors) Reimbursement of employer and employee
portion of FICA is permitted To claim reimbursement of the employee
portion of FICA, the employer must: Refund the employee Issue W-2c
to correct the total FICA withheld Obtain a written confirmation
from the employee to confirm they have not/will not file a claim
for a refund of FICA through the personal income tax return
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- Federal Form 941-X
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- Tax Amendments Federal Form 941X Errors discovered before form
941 is filed FIT, SS or M/C taxes (under/over) discovered after
filing form 941 Under - Timely if filed with return in the quarter
is was discovered and payment is made timely (even if not collected
from EE) Over over withholding does not need to be reported if
repaid to EE For SS and M/C affidavit and receipt required FIT,
repay before end of year or send to IRS Form 843 Claim for Refund
and Request for Abatement 3 year statute of limitation
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- California Form DE-9ADJ
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- Tax Amendments California Form DE-9ADJ Amends wages for 2011
and thereafter; Quarterly adjustments for wages, taxes, and
employee wage detail DE7 used for prior years annualizes
adjustments rather than quarterly; DE6 used to amend quarterly wage
detail VPDI filers use form DE938 to adjust quarterly returns
Effective 7-1-2014, CA has revised penalties from 10% to 15%
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- Special Procedure for corrections in same sex marriage case
Employers provided two alternatives Employer reimbursed employees
for the amount of over- collected FIT and FICA for 1 st 3 quarters
of 2013; Employer reduces FIT and FICA on 4 th quarter 941.
Employer doesnt reimburse employees, then files 941-X for FICA only
refunds
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- Increase in Excludible Transit Benefits Prior to the enactment
of the American Taxpayer Relief Act (ATRA), the maximum amount
excludible for the aggregate of transportation in a commuter
highway vehicle and any transit pass (referred to as transit
benefits) for 2012 was $125 per month. The American Tax Relief Act
increased the maximum transit benefit exclusion to $240 per month
retroactive to January 1, 2012. The exclusion applies whether the
employer provided the transit benefits out of its own funds or
whether the transit benefits were provided through salary reduction
arrangements.
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- Payroll Notices and Inquiries
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- Tracking compliance notices Notice
DateAgencyLocationEIN/Account IDIssueAmount Due Resolution
8/1/14IRSFederal12-3456789941 vs. W-2 out of balance$ _____
7/1/13Dept. of LaborNew York12-3456789SUI interest surcharge$ _____
8/15/14Regional Income Tax Agency Ohio12-3456789Calculated tax due
on wages$ _____
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- Payroll Notices and Inquiries Federal Penalty Notices Types of
Notices You May Receive Underpayment of quarterly return Late
deposit based on 941 Schedule B Late filing of W-2 or 941 FUTA
underpayment based on accreditation with state unemployment agency
Form 941s out of balance with form W-2 Mismatch on SSA# on employee
W-2 (Should this be SSN?) These notices, if not addressed, could
lead to tax levies
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- Payroll Notices and Inquiries State Penalty Notices Types of
Notices You May Receive Wage detail penalties Late deposits Late
returns Payment of SUI at incorrect rate These notices, if not
addressed, could also lead to tax levies
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- Payroll Notices and Inquiries State Unemployment Insurance An
additional employer surcharge may apply in certain states In states
with a FUTA credit reduction, the maximum FUTA credit is reduced
below 5.4%
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- Payroll Notices and Inquiries Local Municipal/County Notices
Calculated tax based on rate Additional withholding tax, due to a
correction of local wages before quarter-end
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- Payroll Tax Audits
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- Business Travel Threshold for reporting and withholding for
business travelers Trailing Liability for Stock Compensation
Employee is working in another state during the vesting period of
stock units Employee Classification Independent Contractor vs.
Employee California aggressively pursuing misclassification based
on unemployment/disability claims; information share with IRS
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- Conclusion What can we learn from amendments and penalty
notices? Identify root causes within the payroll process Review how
employees are onboarded Review how codes are set up for earnings
and deductions Clarifications of federal and state payroll tax
laws
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- Thank you for your attention