Tax Tips - Year's End Thoughts - 11-14-04

As we approach the year’s end, there are a number of items that need attention and evaluation:

-         Have any of your employees gotten married or divorced this year? If they have changed their name with Social Security Administration, and have gotten a new Social Security card, you should be making/should have made the name change in your personnel and payroll records. Again, a reminder – you should insist on having a copy of every employee’s Social Security Card in your file.

-         The maximum Social Security (FICA) tax for each employee should be $5,119.80. If any of your employees have more than this amount – or will have by December 31, you should be adjusting your payroll and payroll deposits before making your final payroll deposit for the year.

-         Just because you use a Payroll Service – even mine – you, as the employer and signer of all payroll-reporting returns, have the final responsibility for accurateness and completeness of your company’s records. Even if the Payroll Service has given you a “No Penalty Guarantee” as I do, it is worth your while to review your payroll records before year’s end to satisfy yourself that everything is complete and accurate. Even if you will not have to pay any penalties for their mistakes, you will still have the headaches associated with dealing with a discrepancy.

-         Many employers are in the habit of giving their employees a “token” Christmas or other year-end gift – a turkey, ham or something else with a “nominal” value. This “gift” is NOT includable in the employee’s W-2 income. IRS has taken the position that the tracking of this activity would cost more than the taxes involved and has chosen to include this in the definition of “di minimis” benefits. However, If the holiday gift is in the form of a “Gift Certificate,” “Coupon,” or other item readily convertible to cash, the value MUST be included in income, have appropriate withholding and be reported on the W-2 – regardless of the amount. Note: I realize you cannot deduct withholding from a gift certificate – you simply add the value/cost of the gift certificate to one of the regular paychecks – in the same year as the certificate is given to the employee.

-         Regarding household employees:

o       Employers are NOT required to withhold Federal Income Tax. Your state may not agree with this. Contact me for details for your specific situation.

§         Employers MAY choose to withhold income tax, IF (1) the employee requests it, (2) the employer agrees, and (3) the employee completes a Form W-4.

§         Do NOT include in household employee’s income:

§         The value of meals or lodging in the employer’s home, if either is provided for the employer’s, not the employee’s, convenience and as a condition of employment.

§         Up to $100 per month in reimbursed commuting expenses for public transportation or $195 per month for reimbursed parking costs.

§         If cash wages paid to all household employees total $1,000 or more in any calendar quarter in 2004, Unemployment taxes will apply.

This listing of thoughts is not intended to be complete. Because some item you were thinking of is NOT mentioned here does not mean it is not of significance. If you have any questions, feel free to contact me.