Noncash wages have reporting requirements
Tax Tip of the Week
September 15, 2014
Noncash wages have reporting requirements
Are noncash wages part of the compensation package you offer your employees?
These "in-kind" payments are often called fringe benefits, and you may know that some of them are taxable. Certain moving expenses you pay on behalf of your employees are an example, as is personal use of working condition fringe benefits such as vehicles.
As you prepare your payroll, identifying and reporting taxable fringe benefits is important. One reason is that taxable benefits must be included on payroll tax returns, such as the annual wage reporting statements (Forms W-2) that you give to your employees and file with the IRS. Failing to correctly report noncash compensation can lead to penalties. In addition, other payroll taxes, such as social security and Medicare, may be underpaid and underreported.
Another caution: If you administer a retirement plan such as a 401(k), contributions are generally calculated using an employee's "compensation." Compensation may be defined in your plan documents as the amount reported on Form W-2. Mistakes made when figuring the correct compensation — such as omitting taxable noncash fringe benefits — can lead to compliance issues for your retirement plan.
Also be aware that you may be required to withhold federal income tax on noncash wages. How to do that when no cash is involved? You can collect the withholding from your employees or pay it yourself. If you choose to pay, that amount is considered additional wages.
Do you have questions about the taxability of noncash compensation? Give us a call. We have answers.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2014
September 15, 2014
Noncash wages have reporting requirements
Are noncash wages part of the compensation package you offer your employees?
These "in-kind" payments are often called fringe benefits, and you may know that some of them are taxable. Certain moving expenses you pay on behalf of your employees are an example, as is personal use of working condition fringe benefits such as vehicles.
As you prepare your payroll, identifying and reporting taxable fringe benefits is important. One reason is that taxable benefits must be included on payroll tax returns, such as the annual wage reporting statements (Forms W-2) that you give to your employees and file with the IRS. Failing to correctly report noncash compensation can lead to penalties. In addition, other payroll taxes, such as social security and Medicare, may be underpaid and underreported.
Another caution: If you administer a retirement plan such as a 401(k), contributions are generally calculated using an employee's "compensation." Compensation may be defined in your plan documents as the amount reported on Form W-2. Mistakes made when figuring the correct compensation — such as omitting taxable noncash fringe benefits — can lead to compliance issues for your retirement plan.
Also be aware that you may be required to withhold federal income tax on noncash wages. How to do that when no cash is involved? You can collect the withholding from your employees or pay it yourself. If you choose to pay, that amount is considered additional wages.
Do you have questions about the taxability of noncash compensation? Give us a call. We have answers.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2014
