Guide for Controllers 2020/2021

1. The New Year
2. Forms W-2 and year-end payroll adjustments
3. Information returns
4. Withholding on non-employee payments
5. Other
6. State issues

The members of Mazars USA LLP’s Entrepreneurial Business Services Group are available to assist you in meeting your year-end compliance and reporting requirements.

I. The New Year

Tax relief to victims of Hurricane Delta

The Internal Revenue Service (IRS) announced that victims of Hurricane Delta, which began October 6, 2020, now have until February 16, 2021, to file various individual and business tax returns and make tax payments.

The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside, or have a business, in the disaster area.

For instance, certain deadlines falling on or after October 6, 2020, and before February 16, 2021, are postponed through February 16, 2021. This includes individual and business tax filers that had a valid extension to file their 2019 return due to run out on October 15, 2020. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief.

According to the disaster declaration issued by the Federal Emergency Management Agency, the IRS announced that affected taxpayers in certain areas will receive tax relief.  For a full list of areas that qualify for tax relief please visit the IRS website.

Employee elections

Have your employees complete all appropriate election forms for 401(k) deferrals, flex plan contributions, etc., for 2021 in writing, in accordance with each plan’s provisions, before January 1, 2021.

W-4 forms

If you have any employees who are claiming exemption from taxes, you must get a Form W-4 signed by them by February 16, 2021 to continue exemption from withholding for 2020. IRS regulations require employers to notify their employees to file a new Form W-4 for any changes to their withholding status. It is also advisable to verify that you have a valid Form W-4 for each employee, and that your payroll service is withholding based on the proper exemptions.

The Social Security Administration will continue to send letters when employee Social Security Numbers on Forms W-2 do not match its records.  Employers can verify Social Security Numbers of employees at www.ssa.gov/bso.

I-9 forms

Employers are required to verify eligibility for employment of all employees hired after 1986.  Form I-9 is used for this purpose.  Review your personnel files to determine that you have Form I-9 for all required employees, including business owners. USCIS (United States Citizenship and Immigration Services) released a revised version of Form I-9 on October 21, 2019 that must be used by all employers (expires on 10/31/2022).  This form can be obtained at www.uscis.gov/i-9, or by calling 1-800-870-3676.

Monetary penalties for knowingly hiring and continuing to employ violations range from $583 to $23,331 per violation, with repeat offenders receiving penalties at the higher end. Penalties for substantive violations, which includes failing to produce a Form I-9, range from $234 to $2,332 per violation.

In determining penalty amounts, U.S. Immigration and Customs Enforcement (ICE) consider five factors: the size of the business, good faith effort to comply, seriousness of the violation, whether the violation involved unauthorized workers, and history of previous violations.

ICE continues to conduct inspections of the Form I-9 for compliance and will hold employers accountable for failure to comply.

Employers should take care not to use an Individual Taxpayer Identification Number (ITIN) that may have been assigned to certain non-resident and resident aliens.  Only a Social Security Number can be used for employment purposes.

Electronic Deposit of Taxes (EFTPS)

All federal tax payments must be made through the Electronic Federal Tax Payment System.  To enroll in EFTPS, go to www.EFTPS.gov  or call 800-555-4477.

Statutory insurance

Confirm that your state disability and workers’ compensation policies are in force.  States impose high daily penalties if policies have not been purchased or have lapsed.

On routine audits of workers’ compensation policies, the carrier will ask for certificates of coverage for independent contractors. If none can be produced, payments made to independent contractors will be included in your premium base.  Make it a practice to obtain certificates of coverage before independent contractors are hired and retain them on file.

Social Security & Medicare Tax base

The tax rates have remained the same as 2019, but the 2020 wage base increased to $137,700. The rates and the taxable wage base for FICA are shown below. There is no limit on the amount of wages subject to the Medicare tax:

Employers are required to withhold the 0.9% additional Medicare tax on an individual’s wages and compensation paid in excess of $200,000 ($250,000 for married couples filed jointly) in a calendar year. The actual additional Medicare tax liability is determined when you file your individual tax return depending on your filing status and applicable threshold amount.  Based on this, any over-withholding or shortage will be adjusted on the individual tax return.  There is no employer match for the additional Medicare Tax.

Monthly Social Security and Supplemental Security Income benefits for nearly 69 million Americans will increase by 1.3% in 2021. Cost-of-Living Adjustment (COLA) will begin with benefits payable to more than 63 million Social Security beneficiaries in January 2021, and increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2020. COLA’s purpose is to ensure that the purchasing power of Social Security and SSI benefits is not eroded by inflation.

The modest 1.3% increase reflects the relatively low rate of inflation over the past year. In years when there is no change in the index, or if prices have fallen year over year, there is no COLA.

401(k) maximum deferral

For 2021, the maximum deferral amount will remain $19,500 from $19,000 for those 49 years of age and younger, or $26,000 for those 50 years of age and older. For those 50 and older to make a catch-up contribution amount of $6,500, the Plan Sponsor must amend the plan (if not previously amended) to permit catch-up contributions, notify the plan participants that they can make catch-up contributions, and revise the plan election forms. In addition, since the catch-up contribution is not included in non-discrimination testing, it must be accounted for separately from other 401(k) contributions. The limit on annual contributions to an IRA is $6,000 for tax year 2020.  The catch-up contribution limit for individuals aged 50 and over is not subject to the cost of living adjustment and remains at $1,000 for a total contribution of $7,000.

Phase outs

Taxpayers can deduct contributions to a traditional IRA if they meet certain requirements. If the taxpayer or spouse was covered by a retirement plan at work during the year, the deduction can be reduced or phased out depending on certain conditions. The modified adjusted gross income (AGI) phase out rates are as follows for 2021:

• Single taxpayers: $66,000-$76,000
• Married filing jointly: $105,000-$125,000
• Married filing separately: $0-$10,000
• Married taxpayer filing a separate return who is covered by a retirement plan at work: $0-$10,000

Simple IRA & Simple 401(k)

For 2021 the maximum contribution is $13,500 for those 49 years of age and younger. For those 50 years of age or older, the maximum contribution is $16,500.

401(k) student loan benefit programs

Implemented in 2019, the IRS allows an employer to make non-elective contributions to employee 401(k) plans if the employees are actively repaying student loans. The IRS took the stance that if an employee contributes at least 2% of their eligible compensation for a pay period towards student loan repayments, then an employer may make a non-elective contribution equal to 5% of the employee’s eligible compensation for that period.

Auto mileage reimbursement

The 2020 mileage rate is 57.5 cents per mile for business miles driven, 17 cents per mile for medical or moving purposes, and 14 cents per mile for charitable organizations.  The 2021 mileage rates are as follows 56.0 cents per mile for business miles driven, 16 cents per mile for medical or moving purposes for qualified active duty members of the Armed Forces, and 14 cents per mile for charitable organizations.

Per diem rates for business travel

The per diem rate for travel can now be found at the U.S. General services Administration Website www.GSA.gov. The rates are effective on October 1 of each year. Traveller reimbursement is based on the location of the work activities and not the accommodations, unless lodging is not available at the work activity; in that case, the agency may authorize the rate where lodging is obtained.

Voluntary Classification Settlement Program (VCSP)

The IRS has a voluntary program that provides an opportunity for employers to resolve past worker classification issues by reclassifying their workers as employees for employment tax purposes for future tax periods. It allows employers the opportunity to comply by making a minimal payment covering past payroll tax obligations, rather than waiting for an IRS audit.

This provides an eligible employer with substantial relief from federal payroll taxes that they may have owed in the past. If they prospectively treat workers as employees to participate in this new voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP using Form 8952, and enter into a closing agreement with the IRS.

Report of foreign accounts

FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR) for the year 2020, is due on or before April 15, 2021, which is consistent with the federal income tax due date. There is an automatic extension for a period of six months (until October 15) for FBARs. In addition, there is a waiver of any late filing penalty for first-time filers who fail to submit a timely extension request or file an extension (but who presumably file by October 15). The FBAR should be filed electronically through the BSA e-File System. If you are unable to e-file, you may contact the FinCEN Regulatory Helpline at 800-949-2732 to request an exemption.

A US person who has a financial interest in, or signature authority over, foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The type of accounts and filing requirements have been expanded to include certain types of investments, bank accounts, and those who are authorized to initiate transactions and sign on foreign accounts. There are significant penalties for failure to file. Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. If your violation is found to be willful, the penalty is the greater of $100,000 or 50% of the balance in the account at the time of the violation.

You may also be required to file Form 8938 along with your individual tax return to report the ownership of specified foreign assets if the total exceeds an applicable threshold amount. Please contact us for further information regarding your filing obligations.

Payment card reporting requirements

Information reporting for credit card payments and third-party network transactions are to be reported on Form 1099-K by January 31, 2021 by businesses for the gross amount of transactions they process if the total number of your transactions exceeds 200 and the aggregate value exceeds $20,000 in a calendar year.

You should make sure that you provide your credit card processors with the appropriate Federal Identification Number (FIN) and a description of your business so that they properly assign you the applicable merchant category code.

II. Forms W-2 and year-end payroll adjustments

Forms W-2 must be distributed to your employees by February 1, 2021. Before processing Forms W-2, the following steps should be taken:

• Notify your payroll service in writing to keep your 2020 payroll file open for adjustments, including manual checks and voids, taxable fringe benefits, and third-party sick pay.
• Many payroll services can provide a W-2 draft report, which should be reviewed before the W-2s are finalized. This step will eliminate the need to incur expenses for revising incorrect Forms W-2, and/or filing amended Forms W-2.
• Report any manual payroll checks, voided checks, third-party sick pay, etc. to your payroll service before your last December payroll, or before the closing date for adjustments as agreed to by your service. Unreported adjustments will result in the need for Forms W-2C, extra charges from your payroll service, and, may result in penalties for late payment of taxes.
• Review your bank reconciliations and your general ledger net payroll account to make sure that all adjustments have been reported.
• If you have a 401(k) plan, premium-only plan, or other plans administered by your payroll service, review the coding of your employees so that the payroll service can do appropriate testing to avoid disqualification of the plan.
• Before distributing Forms W-2 to employees, reconcile the totals to your general ledger and to the quarterly 941 returns that were filed for the year.
• As an employer, you must keep all records of employment taxes for at least four years.

Please be aware of these filing deadlines. Have all employees review their Form W-2 and make necessary corrections prior to filing to alleviate having to file corrected W-2s. Forms W-2 can be filed electronically with the Social Security Administration (SSA) at www.socialsecurity.gov/employer. They are required for all employees that were paid $600 or more in wages, even if no taxes were withheld.

Extensions of time

Extension of time to file with the SSA

Extensions of time to file Form W-2 with the SSA are no longer automatic. A 30-day extension must be requested by submitting a completed Form 8809 before the due date of Forms W-2. A detailed explanation is required, and the IRS will only grant the extension in extraordinary circumstances or catastrophe, such as a natural disaster that destroys a company’s books and records. If the IRS grants the extension, then the Forms W-2 must still be furnished to employees by February 1, 2021, unless the due date to furnish forms to recipients has also been granted an extension.

Extension of time to furnish form W-2 to recipients

You may request an extension of time to furnish the statements to employees by sending a letter to:

Internal Revenue Service
Attn: Extension of Time Coordinator
240 Murall Drive, Mail Stop 4360
Kearneysville, WV 25430

The request must be postmarked by February 1, 2021 and include (a) payer name and address, (b) payer TIN, (c) a statement that you are requesting an extension to furnish “Forms W-2” to employees, (d) the reason for the delay, and (e) signature of the payer or authorized agent. Requests are not automatically granted. If approved, an extension will generally be for no more than 15 days from the due date, unless the need for up to a total of 30 days is clearly shown.

Penalties

Penalties and exceptions are based on when you file the correct Form W-2. Please see the Information Returns section for specific penalty information.

Designated Roth contributions

A participant in a section 401(k) plan, under a 403(b)-salary reduction agreement, or in a governmental 457(b) plan that includes a qualified Roth contribution program, may elect to make designated Roth contributions to the plan or program in lieu of elective deferrals. Designated Roth contributions are subject to income tax withholding and Social Security and Medicare tax and must be reported in boxes 1, 3, and 5.

Health care benefit reporting

The reporting of the cost of employer-sponsored group health coverage is mandatory for the year 2020 for all employers under the Affordable Care Act. It is reported on the Form W-2 in Box 12 using Code DD (full premium payment). Transition relief applies to certain employers and certain types of plans.  Reporting is optional for employers with 250 or fewer W-2 employees in the preceding calendar year.  There is no reporting on the Form W-3 of the total of these amounts for all employees.

Archer MSA

You must report all employer contributions to an Archer MSA in box 12 of Form W-2 with Code R. Employer contributions to an Archer MSA that are not excludable from the income of the employee must also be reported in boxes 1, 3, and 5 (box 14 if railroad retirement taxes apply).

An employee’s contributions to an Archer MSA are includible in income as wages and subject to federal income tax withholding, Social Security and Medicare taxes (or railroad retirement taxes, if applicable). Employee contributions are deductible, within limits, on the employee’s Form 1040.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

Use box 12 Code FF to report the total amount of permitted benefits under a QSEHRA. A QSEHRA allows eligible employers to pay or reimburse medical care expenses of eligible employees after employees provide proof of coverage. Reimbursements for 2020 are capped at $5,250 ($10,600 if also providing for family members), before indexing for inflation.

Federal employers in the CNMI

There are special income tax withholding requirements for certain federal agencies that have employees who work in the Commonwealth of the Northern Mariana Islands (CNMI) or Puerto Rico.

Rather than U.S. federal income taxes, all federal employers (including the Department of Defense) are required to withhold and deposit CNMI taxes with the CNMI Treasury for those employees whose regular place of federal employment is in the CNMI. Federal employers are required to file quarterly and annual reports with the CNMI Division of Revenue and Taxation.

Limit on health Flexible Spending Arrangement (FSA)

For 2020, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,750. The salary reduction contribution limitation of $2,750 does not include any amount (up to $500) carried over from a previous year. The limit for 2021 has remained at $2,750.

Additional Medicare

In addition to withholding Medicare tax at 1.45%, an employer is required to withhold a 0.9% additional Medicare tax on any FICA wages or RRTA compensation it pays to an employee in excess of $200,000 in a calendar year. Additional Medicare tax is only imposed on the employee, not the employer. An employer begins withholding in the pay period where wages or compensation exceeds $200,000, without regard to filing status, and continues to withhold it until the end of the calendar year.

Employee’s FICA paid by employer

If you paid your employee’s share of Social Security and Medicare taxes rather than deducting them from the employee’s wages, you must include these payments as wages subject to federal income tax withholding, Social Security, Medicare and federal unemployment (FUTA) taxes. This does not apply to household and agricultural employers, who must only include these payments in employee wages for income tax withholding purposes. The wage increase is not subject to Social Security, Medicare, or FUTA taxes.

The SSA encourages all employers to file electronically.  Paper Forms W-2 must be filed with the SSA by February 1, 2021. Forms W-2 can be filed electronically with the SSA at www.socialsecurity.gov/employer.

If you are filing 250 or more returns, they must be filed electronically using specialized software. Failure to file electronically when required may result in a penalty. The due date for electronically filed returns is February 1, 2021. If you e-file, do not file the same returns using paper forms.

Common payroll adjustments

The following is a summary of some of the items that are taxable to employees in addition to wages and salaries.

Third-Party sick pay

Sick pay or disability payments made to your employees by your insurance carrier are includible as compensation on the W-2. Such payments, particularly those made in the 4th quarter, will not be reported to you by the insurance carrier until sometime in January. You should determine if your disability insurance carrier is responsible for filing a separate Form W-2 for sick pay. If the insurance company or other third-party payer did not notify you in a timely manner about the sick pay payments, it must prepare Forms W-2 and W-3 for your employees showing the sick pay. If not, it is important that you inform your payroll service to keep 2020 open for adjustments.

Employee business expense reimbursements

If you have an accountable plan (in which your employees must give an accounting to you and substantiate their expenses), do not report any reimbursement to your payroll service. However, if you make payments for expenses to your employees and they do not account to you or substantiate their expenses, then you must include those payments as wages, subject to all taxes. In addition, any excess reimbursements must be returned in a reasonable time so as not to be treated as wages. Taxable Premiums on Excess Group Life Insurance

Each employee who is covered for more than $50,000 of group term insurance (cost reduced by the amount the employee paid towards the insurance) must be taxed on the value of the excess coverage. Report the cost as wages in boxes 1, 3, and 5 of Form W-2, and in Box 12 with Code C. This benefit is subject to FICA and Medicare tax, but not income tax withholding.

The amount to be included is calculated based on the age of the employee, the amount of coverage, and the cost in accordance with this table published by the IRS:

Remember to reduce the full month’s coverage by $50,000 before plugging it into the equation, and to also reduce the result by any amount the employee paid toward the insurance.To calculate the amount to be included in wages, multiply Monthly Cost * Full Month’s Coverage * Months Covered.

If the full month’s coverage was $150,000, the employee was 47 years old, and the employee contributed $80 towards life insurance, then the following calculation would be made to determine the amount reported on the employee’s Form W-2:

$150,000 – $50,000 = $100,000

$100,000/$1,000 = 100

$0.15 * 100 * 12 months = $180

$180 – $80 = $100

Year-End bonus payment

Notify your payroll service if you want an additional bonus payroll set up. Advise your employees that taxes must be withheld. Several of our clients have had withholding tax audits, and bonus payments are one area being audited. You could be subject to penalties and/or interest if the proper taxes are not withheld. This applies to state, city and federal withholding.

For 2020, the optional flat rates for withholding on supplemental payments including bonuses are:

The FUTA tax rate is 6.0%. This results in a net FUTA tax rate of 0.6% if you are entitled to the maximum 5.4% credit for payment of state unemployment insurance taxes. Generally, you are entitled to the maximum credit if you paid your state unemployment taxes in full on time and the state is not determined to be a credit reduction state.Federal Unemployment Tax Act (FUTA) Tax Rate

Some states take federal unemployment trust fund loans from the federal government. The United States Department of Labor determines which states have not repaid money borrowed from the federal government to pay unemployment benefits. These states are considered “credit reduction states” and are required to pay additional federal unemployment tax when filing an annual Form 940 return.

For 2020, the US Virgin Islands has been determined to be a credit reduction state. The Form 940 Schedule A will list all the states subject to this additional tax, which can vary from year to year.

In years when there are credit reduction states, you must include liabilities owed for credit reduction with your fourth quarter deposit. Employers in states with a credit reduction will incur a FUTA tax rate of .6% + FUTA credit reduction + Benefit Cost Rate (BCR) add-on.

Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) NoticeThis state applied and was approved for relief of the BCR additional credit reduction.

CHIPRA requires that employers must notify individuals of their rights to obtain premium assistance for coverage for children. A model notice is available at www.dol.gov/agencies/ebsa/laws-and-regulations/laws/chipra

Educational assistance

Employer-provided education assistance program payments for 2021 have not been released yet. For 2020, payments up to $5,250 are not subject to tax (IRS Code Sec 127). Amounts more than $5,250 per year must be included as taxable wages, unless the expenses are working condition benefits, i.e., the employee would have been able to deduct the cost had he or she paid for it. Payments for business training under an accountable plan are not required to be reported on Form W-2.

Taxable fringe benefits

Be sure to report to your payroll processor any includible amounts, such as the value of personal expenses advanced by the company, including personal auto usage, travel for family members, meals and entertainment, and professional fees. For employees who use company vehicles, the employer must include the value of personal use in boxes 1, 3, and 5 on Form W-2 and withhold Social Security and Medicare tax, but have the option not to withhold federal income tax if the employer notifies the employee and includes the value of the benefit in boxes 1, 3, 5, and 14. Employees are required to keep records that substantiate their business usage of such vehicles. Expenses reimbursed under a non-accountable plan must be included in the employee’s income.

Nonqualified deferred compensation plans

All amounts deferred under a nonqualified deferred compensation plan are currently includible in gross income unless certain requirements are satisfied (Code Section 409A). Such deferrals are reported on Form W-2 in box 1 and in box 12 using Code Z (income amount). This income is also subject to an additional tax of 20% that is reported on Form 1040. Code Y (deferral amount) is not required to be reported on Form W-2. Nonqualified deferred compensation may also be reported as income on Form 1099-NEC box 14.

Other reportable amounts

If you have any special situations, including adoption benefits, Medical Savings Accounts, Moving Expenses, Outplacement Benefits, Or Employee Business Expense Reimbursements Under A Non-Accountable Plan, Contact Us To Discuss Proper Treatments.

III. Information returns

Many payments made in the ordinary course of business must be reported to the IRS, generally on 1099 series forms. Not-for-profit organizations are also considered to be engaged in a trade or business and are subject to reporting requirements. Form W-9 (or one of the Form W-8 series for foreign persons) should be used for obtaining taxpayer identification numbers. You should request to have this completed prior to issuing payment.

The following table lists key information returns and their due dates:

* If reporting payments in box 8 or 10

** If reporting by trustees and middlemen of Widely Held Fixed Investment Trust (WHFITs)

If you are filing 250 or more returns, they must be filed electronically using specialized software. File Form 4419 at least 30 days before the due date of the returns to obtain approval to file electronically. Failure to file electronically when required to do so may lead to a penalty of up to $270 per return, unless a reasonable cause can be established. The first 99 returns can be filed on paper, not subject to the electronic filing penalty.

Penalties are indexed for inflation.

Failure to file correct information returns by the due date

The penalty applies if you fail to file timely, fail to include all information required to be shown on the return or include incorrect information on a return.

The amount of the penalty is based on when you file the correct information return:

• $50 per Information Return if filed correctly within 30 days of the due date; maximum penalty of $565,000 per year ($197,500 for small businesses).
• $110 per Information Return if filed correctly more than 30 days after the due date, but by August 1; maximum penalty of $1,696,000 per year ($565,000 for small businesses).
• $280 per Information Return if filed after August 1, no corrections are filed, or if the required Information Return is not filed; maximum penalty of $3,392,000 per year ($1,130,500 for small businesses).
• At least $560 per Information Return with no maximum penalty if failure to file is due to intentional disregard of the filing requirements.

Exceptions

The penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect.

An inconsequential error or omission is not considered a failure to include correct information. Errors and omissions that are never inconsequential are those related to (a) a TIN, (b) a payee’s surname, and (c) any monetary amount except as provided, later, with respect to the safe harbor for de minimis dollar amount errors.

If you meet the following de minimis rule for corrections, even though you cannot show reasonable cause, the penalty for failure to file correct information returns will not apply to a certain number of returns if:

1. You filed the forms on or before the required filing date;
2. You either failed to include all the information required on the return or included incorrect information; and
3. You filed corrections of these returns by August 1.

If you meet all of the above de minimis rule conditions, the penalty for filing incorrect information returns (including Form W-2) will not apply to the greater of 10 information returns (including Form W-2) or ½ of 1% of the total number of information returns (including Form W-2) that you are required to file for the calendar year.

Safe harbor for de minimis dollar amount errors.

Failure to furnish correct statement to recipients by the due date

This separate penalty is applied the same as failure to file (listed above).

Exceptions

An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error and omission cannot reasonably be expected to prevent the payee from timely receiving correct information and reporting it on the recipients’ income tax return.  Errors and omissions that are never inconsequential are those relating to (a) a dollar amount, (b) a significant item in a payee’s address, (c) the appropriate form for the information provided, and (d) whether the statement was furnished in person or by mailing, when required.

Safe Harbor for de minimis dollar amount errors on information returns and payee statements

No correction need be filed, and a Safe Harbor will apply, if an information return (including Form W-2) is issued with incorrect dollar amounts, and the corrected dollar amount is off by $100 or less, and tax withheld is off by $25 or less. The de minimis error safe harbor does not apply for failure to file or furnish an information return or payee statement outright, even if it would report dollar amounts of $100 or less (or $25 or less with respect to any amount of tax withheld).

Extensions of time to file

You can get an automatic 30-day extension of time to file by completing Form 8809. The form may be submitted on paper, or through the FIRE System either as a fill-in form or an electronic file. A signature or explanation may be required for the extension. However, you must file Form 8809 by the due date of the returns in order to get the 30-day extension. Under certain hardship conditions, you may apply for an additional 30-day extension.

Extension of time to furnish to recipients

You may request an extension of time to furnish the statements to recipients by sending a letter to:

Internal Revenue Service
Attn: Extension of Time Coordinator
240 Murall Drive, Mail Stop 4360
Kearneysville, WV 25430

The letter must include (a) payer name, (b) payer TIN, (c) payer address, (d) type of return, (e) a statement that extension request is for providing statements to recipients, (f) reason for delay, and (g) the signature of the payer or authorized agent. The request must be postmarked by the date on which the statements are due to the recipients. Generally, you will be granted a maximum of 30 extra days to furnish the recipient statements.

The following list of reporting items is not all-inclusive.

1099-NEC

Beginning with tax year 2020, the IRS introduced Form 1099-NEC to report nonemployee compensation. Form 1099-NEC is used for each person in the course of your business who, in the preceding year has been paid at least $600 in:

• Services performed by someone who is not your employee (including parts and materials) would be reported in Box 1.
• Cash payments for fish or other aquatic life you purchase from anyone engaged in the trade or business of catching fish would be reported in Box 1.
• Payments to an attorney, would to be reported in Box 1.

Businesses must also file Form 1099-NEC for each person from whom they have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

1099-MISC

The 1099-MISC (Miscellaneous Income) is filed for each person to whom a business made payments during the year. (in general, individuals, partnerships (including LLPs and LLCs) and certain reportable corporations (ex: physicians and attorneys).  With the introduction of Form 1099-NEC, Form 1099-MISC has been revised and rearranged box numbers for reporting certain income.

It is required to list payments for royalties of $10 or more (box 2) or broker payments in lieu of dividends or tax-exempt interest (box 8), as well as compensation of at least $600 in:

• Rents (box 1)
• Prizes and awards (box 3)
• Other income payments (box 3)
• Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3)
• Any fishing boat proceeds (box 5)
• Medical and health care payments (box 6)
• Crop insurance proceeds (box 9)
• Payments to an attorney (box 10)
• Section 409A deferrals (box 12)
• Nonqualified deferred compensation (box 14)

Rental income recipients are required to report payments they made for expenses that they deducted from rental income using the Form 1099-MISC reporting requirements. Paying vendors by credit card would reduce 1099-MISC filing requirements.

Credit card payments

Payments made with a credit card that are reported on Form 1099-K by your credit card company that otherwise would be reportable on a Form 1099-MISC are not subject to reporting by the payer.

Attorneys

The term “attorney” includes a law firm or other provider of legal services. Attorneys’ fees or payments of $600 or more paid in the course of your trade or business are reportable in box 1 of Form 1099-NEC.

For Gross proceeds paid to attorneys, report in box 10 of Form 1099-MISC payments that:

• Are made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement;
• Total $600 or more; and are not reportable by you in box 1 of Form 1099-NEC.

Generally, you are not required to report the claimant’s attorney’s fees. For example, an insurance company pays a claimant’s attorney $100,000 to settle a claim. The insurance company reports the payment as gross proceeds of $100,000 in box 10.

However, the insurance company does not have a reporting requirement for the claimant’s attorney’s fees subsequently paid from these funds.

These rules apply whether or not:

• The legal services are provided to the payer
• The attorney is the exclusive payee (for example, the attorney’s and claimant’s names are on one check).
• Other information returns are required for some or all of a payment under another section of the Code (6041).

Settlements

Punitive damages, damages for non-physical injuries or sickness, and any other taxable damages must be reported on Form 1099-MISC. Certain damages are not required to be reported. Please call our office for further information regarding taxable and non-taxable damages.

1099-INT

Any interest payments of $10 or more (or at least $600 of interest paid in the course of a trade or business) to individuals, partnerships, and LLCs must be reported. If interest has been imputed on a loan, this should be reported to avoid the below-market interest rules.

1099-OID

Original issue discount of $10 or more on notes, including installment sale notes, must be reported on an accrual basis each year.

1099-DIV

File Form 1099-DIV, Dividends and Distributions, for each person to whom you have paid dividends (including capital gain dividends and exempt-interest dividends) and other distributions on stock of $10 or more; for whom you have withheld and paid any foreign tax on dividends and other distributions on stock; for whom you have withheld any federal income tax on dividends under the backup withholding rules or; to whom you have paid $600 or more as part of a liquidation.

1099-R

Distributions to participants of $10 or more from your pension plan, 401(k), etc., must be reported with the appropriate codes. Coordinate with your actuary or plan administrator to determine who will be responsible for filing 1099-Rs.

The cost of current life insurance protection provided by a pension plan, death benefit payments made by employers that are not made as part of a pension, profit-sharing, or retirement plan, and reportable disability payments made from a retirement plan must also be reported on form 1099-R.

Late rollover contributions to an IRA certified by the participant are reportable in boxes 13a and 13b on Form 5498. The self-certification code is reportable in box 13c.

New in 2020 from the SECURE Act, is the provision for a distribution of up to $5,000 for a qualified birth or adoption that is exempt from the 10% early distribution tax and that can be repaid. It also introduced required minimum distributions (RMDs), which increased the RMD age from 70½ to 72 for taxpayers turning 70½ after December 31, 2019.

1098

Mortgage interest of $600 or more received by you from an individual, including a sole proprietor, must be reported if you are engaged in a trade or business of lending. File a separate Form 1098 for each mortgage. The $600 threshold applies separately to each mortgage, so you are not required to file Form 1098 for a mortgage on which you have received less than $600 in interest, even if an individual paid you over $600 on multiple mortgages. Filers must report the number of properties, in excess of one (1), that secure a single mortgage. Mortgage insurance premiums of $600 or more received by you are reportable in box 5, including prepaid premiums.

Tip reporting

All employees receiving $20 or more a month in tips must report 100% of their tips to their employer. You must file Form 8027 if you’re an employer who operates a large food or beverage establishment, normally employing more than 10 full-time equivalent employees, not counting owners with more than 50% ownership. Form 8027 is due by paper by March 1, 2021 or by March 31, 2021, if filed electronically. For further information on tip reporting, please contact us.

Other

There are several other situations that require reporting, such as payments to Archer Medical Savings Account payments, health savings accounts, real estate transactions, barter transactions, and cancellation of debt. Contact us for further information on these types of reporting.

IV. Withholding on non-employee payments

To report other withholding tax, Form 945 must be filed by February 1, 2021. Taxes reported on Form 945 must be deposited separately from other withheld taxes. If you made deposits on time in full payment of the taxes for the year, you may file the return by February 10, 2021. Your return will be considered timely filed if it is properly addressed and mailed first class or sent by an IRS-designated private delivery service on or before the due date.

All lump-sum retirement plan distributions paid directly to employees (as distinguished from rollovers) are subject to an automatic 20% federal withholding tax. This applies whether the distribution is due to changing jobs, retirement, termination, or early withdrawals. Minimum distributions (for beneficiaries over 70½) are subject to 10% withholding only if the beneficiary so desires.

If the lump sum distribution is paid directly to a trustee of a rollover account, the 20% withholding tax will not apply. However, the distribution must be paid directly to the rollover IRA and must not be payable to the employee. Tax withheld on pension distributions is reportable on Form 945.

Backup withholding

Payments that are subject to 1099 reporting are subject to backup withholding at a rate of 24% if the payee fails to provide his or her correct taxpayer identification number. The IRS enforces the collection of such withholding where a Form 1099 reports a missing taxpayer identification number or an incorrect number. You will be liable for uncollected tax, penalties, and interest on such payments. Therefore, it is extremely important that payments subject to 1099 reporting not be made until the payee’s taxpayer identification number is obtained. The IRS provides validation of tax identification, numbers and names through its website. Please contact our office if you need further information on this service.

If you receive a notice from the IRS that a number is incorrect, you will have to begin withholding taxes from future payments for that payee. Backup withholding (reported on Forms 1099 and Form W-2G, Certain Gambling Winnings) is reportable on Form 945, Annual Return of Withheld Federal Income Tax.

Separate deposits are required for payroll (Form 941 or Form 944) and non-payroll (Form 945) withholding. Deposit all withheld federal income tax by EFTPS. There are two deposit schedules – monthly or semiweekly – for determining when you must deposit federal income tax withheld. For 2021, a taxpayer is a monthly schedule depositor for purposes of Form 945 if the total tax reported on the 2019 Form 945 (Line 3) was $50,000 or less. If the total tax reported for 2019 was more than $50,000 the individual is a semiweekly schedule depositor.

A monthly schedule depositor who accumulates a $100,000 liability or more on any day during a calendar month must deposit the tax by the next business day, and their deposit schedule changes on the next day to semiweekly for the remainder of the year and for the following year.

Unless there is a reasonable cause, penalties are issued for filing the Form 945 late and for paying or depositing taxes late.

Amounts not properly or timely deposited

Form 1042Interest is charged on taxes paid late at a rate set by law.

Form 1042 is used to report tax withheld from foreign persons or entities. Form 1042-S must be filed and furnished to recipients by March 15, 2021.

Foreign partners or payees

Three forms are required for reporting and paying tax withheld on effectively connected taxable income allocable to foreign partners; Form 8804, Form 8805, and Form 8813.

Form 8804 and Form 8805 used to report income and tax withheld must be filed annually with the IRS by the 15th day of the 3rd month following the close of the partnership’s year (March 15th for calendar year partnerships). Certain payments to foreign payees for services performed in the United States require tax to be withheld and remitted on Form 1042 by March 15, 2021. Form 8804 is a transmittal form for Form(s) 8805. File a separate Form 8805 for each foreign partner, whether any withholding tax was paid, and attach Copy A of each Form 8805 to the Form 8804 filed with the IRS. Form 8805 must be sent to each foreign partner by the due date of the partnership return (including extensions). Although an extension of time to file Form 8804 is permitted by filing Form 7004, it does not extend the time to pay the tax.

Form 8813 must accompany each payment of section 1446 (partnership withholding) tax made during the partnership’s tax year. File on or before the 15th day of the 4th, 6th, 9th and 12th months of the partnership’s tax year.

Penalties

Interest is charged on taxes not paid by the due date, even if an extension to file is granted. It is also charged on penalties imposed. Interest rates are determined under section 6621.

Late filing of Form 8804 results in a penalty of 5% of the unpaid tax for each month or portion of a month the return is late, up to a maximum of 25% of the unpaid tax, unless the partnership can show reasonable cause. If Form 8804 is filed more than 60 days late, the minimum penalty will be $330 or the amount of any tax owed, whichever is smaller.

Both late filings of Forms 8805 required to be filed and failure to furnish correct Forms 8805 to recipients when they are required to be furnished, result in a penalty of $280 per Form 8805, with a maximum penalty of $3,392,000 per year. The penalty can be reduced or eliminated if the partnership has average annual gross receipts of less than $5 million during a specific period, corrects the failure to file during the specific period, or has a de minims number of failures to file correct forms.

V. Other

Recent Acts passed and responses to COVID-19

2020 has been a year of many ups and downs.  The DOW reached a record high of 29,551.42 on February 12, 2020 and by mid-March, came tumbling down.  On March 12, the DOW fell a record 2,352.60 points in a single trading day, the worst in US market history.  In large part, this recessionary period can be credited to the COVID-19 Pandemic.  COVID-19 hit the US economy and job market in many ways, with the US government responding.

CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is one of the largest and most significant pieces of economic relief ever passed at $2.2 trillion dollars.  This act was signed into law on March 27, 2020.  The bill is 880 pages and provides for economic aid to individuals and businesses, as well as support for hospitals, healthcare workers, and other elements of the healthcare system.

Some of the major elements of the CARES Act include:

1. Expanded unemployment insurance benefits – an extra $600 in enhanced benefits was available from the federal government which expired July 31, 2020
2. Small business loans under the Paycheck Protection Program (PPP)
3. Distressed industry lending
4. Deferment of payroll taxes
5. Employee retention credit

Paycheck Protection Program (PPP)

The PPP is the most popular small business program from the CARES Act for.  This is a federally backed loan organized by the Small Business Administration (SBA) given to small businesses with less than 500 employees.  The loan is to help pay for qualified payroll expenses, rent, utilities, interest and other debt incurred before February 15, 2020.  The loan is based upon 2.5 times the monthly average payroll cost for the one-year period prior to the loan and not to exceed $10 million.

Deferment of employer payroll taxes

This deferral applies to the employer portion of Social Security taxes (6.2% of wages).  The payroll tax payment deferral is in addition to the provisions of the Employee Retention Credit and credits granted under the Families First Coronavirus Relief Act (FFCRA). In other words, you can defer payment of the employer portion of Social Security taxes (6.2% of wages) for all employees for wages paid between March 27, 2020 and December 31, 2020.

For regular employers who file Form 941, Employer’s Quarterly Federal Tax Return, the IRS advised that it released an updated Form 941 to be used for Q2 2020. This revised form will include information on how you should reflect deferred deposits and payments that would have been due for Q1 2020.

Employee retention credit

This is a refundable tax credit against certain employment taxes (employer portion only) equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021 (up to $5,000 per full time employee). You can get immediate access to the credit by reducing the employment tax deposits you are otherwise required to make.  Employers can access this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19.

Employers are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:

1. Full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19; or
2. A significant decline in gross receipts.

Families First Coronavirus Response Act

Signed by President Trump on March 18, 2020, this act put relief in the hands of employees and business owners by providing nutrition funding for Americans, family medical and sick leave, tax credits to reimburse employers and extended unemployment benefits.

Emergency paid leave

Paid Leave Under the Families First Coronavirus Response Act (The Act) provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay.

IV. State issues

Withholding from employees

Many states permit employers to rely on the exemptions claimed on Form W-4.  However, some states do require that a separate withholding form be submitted if an employee is claiming excessive allowances.  For example, New York State requires the submission of Form IT-2104 if more than 14 exemptions are claimed.  Please contact our office for specific requirements for other states.

Minimum wage (New York State and New York City)

The minimum wage will increase in New York State on December 31, 2020. The minimum wage rates for New York are as follows:

On December 31, 2020, the minimum wage for fast-food establishments will increase to $14.50 throughout the rest of New York State and by December 31, 2021 the minimum wage throughout all of New York State will reach $15.00.

Other state minimum wage rates

12-Week Paid Family Leave Policy* The ordinance provides that the minimum wage will not increase when the unemployment rate in Chicago for the preceding year, as calculated by the Illinois Department of Employment Security, was equal to or greater than 8.5 percent. The ordinance also provides that if the CPI increases by more than 2.5 percent in any year, the minimum wage increase shall be capped at 2.5 percent.

On April 4, 2016, Governor Cuomo signed into law the 12-Week Paid Family Leave Policy, which is the most comprehensive in the nation.  When fully phased in, employees will be eligible for 12 weeks of paid family leave when caring for an infant, family member with a serious health condition, or to relieve family pressures when someone is called to active military service. Additionally, under new legislation signed by Cuomo this year, paid family leave will expand to cover eligible farm workers who will have access to 12 weeks of job protected paid time off as of January 1, 2021. Paid family leave is not available for pre-natal conditions. In 2021, the maximum benefit will increase to 67% (increase from 60% in 2020) of the employee’s average weekly wages, up to a statewide average salary of $971.61 per week. The policy will be fully implemented in 2021 at 67% of the employee’s average weekly wage but capped at 67% of the weekly statewide average.  The Average Weekly Wage is set every year by the New York State DOL. For example, in 2021 an employee that makes $1,000 a week would receive a benefit of $670 a week, and the maximum amount of NY State’s Average Weekly Wage (NYSAWW) is $971.61. An employee that makes $2,000 a week in 2021 would only receive $971.61 because of the New York State cap. This program will be included under the disability policy all employers must carry, and the premium will be fully funded through a nominal payroll deduction for employees, so employers will incur no cost.  Employees will be eligible to participate after having worked for their employer for six months.

The maximum covered wages for PFL contributions for 2020 have increased from $72,860 to $75,409. All eligible employee wages including commissions and bonuses, up to $75,409 annually will be subject to premium charge. The 2021 PFL premium rate has increased from .270% to .511%. The maximum annual employee contribution is $196.72 ($75,409 * .00511.)

New Jersey Paid Family Leave Act

On February 19, 2019, New Jersey Governor Phil Murphy signed a bill that would expand coverage and increase the benefits of the paid family leave program. As of 2019, the definition of a family member has expanded. The definition now includes grandparents, grandchildren, siblings, other blood relations and even non-related individuals whose relationship is like that of a family member.

There is also now reduced schedule leave. Someone taking reduced schedule leave under the new program can now receive benefits for up to 12 consecutive months instead of 24 weeks. Individuals who take FLA to bond with a newborn will be able to take leave intermittently. In addition, employees taking paid family leave cannot be forced to use paid time off.

Currently employers with 30 or more employees will be covered by the FLA. There is now no more waiting period for family leaves starting on or after July 1.

As of July 1, 2020, paid family leave benefits increased from six weeks to 12 weeks. Employees have the ability to take 56 days of intermittent leave instead of 42 days. Maximum benefits will increase to 85% of an individual’s average weekly wage up to the cap.

New York City paid safe and sick leave

Employers with five or more employees who are employed for more than 80 hours per calendar year in New York City must provide paid sick leave.

Employers with fewer than five employees must provide unpaid sick leave.

Employers with one or more domestic workers who have worked for the employer for at least one year and who work more than 80 hours a calendar year must provide paid sick leave.

This law also applies to employees who do not live in New York City, but work there more than 80 hours per calendar year, and employers located outside of New York City that have employees that work there more than 80 hours per calendar year.

Nonprofit employers are covered by the Paid Sick Leave Law and must comply. However, it does not apply to employees who work 80 hours or less per calendar year in New York City; government agencies (U.S. Government, State of New York City, City of New York); participants in federal work-study programs; employees whose work is compensated by qualified scholarship programs; physical therapists; occupational therapists; speech language pathologists and audiologists licensed by the New York State Department of Education; independent contractors who do not meet the definition of an “employee” in the New York State Labor law; participants in Work Experience Programs; and certain employees subject to a collective bargaining agreement.

Employees begin to accrue sick leave on their first day of employment at the rate of one hour for every 30 hours worked, up to a maximum of 40 hours per calendar year. An exception to this is a domestic worker, who has worked for the employer for at least one year, will earn two days of paid sick leave. When an employee uses paid sick leave, the employer must pay the employee what the employee would have earned for the time and the type of work the employee was scheduled to perform at the time the paid sick leave is taken.

Physical therapists; occupational therapists; speech language pathologists and audiologists licensed by the New York State Department of Education are not covered under the law if they call in for work assignments at will; determine their own work schedule; have the ability to reject or accept any assignment referred to them; and are paid an average hourly wage, which is at least four times the federal minimum wage.

New Jersey Paid Sick Leave Act

The overarching goal is to have all employees within New Jersey accrue paid sick leave. However, the legislation does not apply to union workers in the construction industry, per diem healthcare workers, or public employees who already receive sick pay. Furthermore, New Jersey residents working outside of New Jersey are also exempt. Any paid sick leave must be earned before it may be used at a rate of one hour earned per 30 hours worked, with a cap of 40 earned hours in a year. Paid sick leave may be elected after 120 days into the year. Employees may carry over a maximum of 40 hours of sick leave into subsequent years. Employers that already offer policies with “paid days off” do not need to create additional policies to capture the paid sick leave. Employees must give notice when time-off is foreseeable, otherwise prompt notice is required. Also, employers may decline employee requests for specific dates, or require medical documentation to justify immediate requests. Employers are required to post a sign of worker’s rights, including paid sick time, within 30 days of this law taking effect.

Employees that use sick time for invalid purposes are subject to employer penalties. First offense fines range from $100-$1000, or 10-90 days in jail. Repeat offenses have fines ranging from $500-$1000, and/or 10-100 days in jail. Violators may also suffer penalties for each week an employee accrues paid sick time. The New Jersey Labor and Workforce Development Commissioner may also levy fines of $250-$500.

Valid uses of sick time

• Personal health or that of a family member (broad definition given)
• Pertaining to domestic or sexual violence needing immediate medical attention or legal services
• Closure of the employee’s, or family member’s, workplace, school, or childcare facility due to health emergency.
• A child’s school-related function

New hire notification

You must continue to provide information about newly hired employees within 20 calendar days from the hiring or rehire date.  If there is a newly hired nonresident alien visa employee, you have 20 calendar days to report the new hire starting from the date the employee receives a Social Security Number.

Failure to report newly hired employees will result in a fine up to $25 per violation penalty for each employee not reported. Failure to file a report showing the required information also results in a $20 penalty for each false or incomplete report filed. Employers in New York State that report electronically, must do so using two monthly transmissions (if needed) not less than 12, or more than 16, days apart.  The State of New Jersey requires employers that submit electronically to report every 12-16 days. Contact information is:

In 2020, the New Jersey Unemployment and Disability Maximum Earnings is $35,300. It will increase to $36,200 in 2021. The withholding rate for employees in 2020 was .845%. In 2021 the rate will increase to 1.175%. The maximum employee deduction for 2020 was $298.29. The maximum employee deduction for 2021 will be $425.35.You can obtain a link to new hire reporting for all states at www.sba.gov.

Multi-state employers can designate one state in which any employee works and transmit all new hire information to that state alone. You must notify the U. S. Department of Health & Human Services in writing if this option is selected.

Your payroll processing company may or may not report new hires as part of its service, so you should contact your provider to determine whether this is being reported for you.

Notification to newly hired employees

New York State requires that newly hired employees be notified in writing at the time of hiring as to their rate of pay, their overtime rate of pay (if eligible for overtime), and the employer’s regular pay day.  The employer must obtain and retain a written acknowledgement from the employee of the receipt of the written notices.

There are significant civil penalties for failure to comply – $1,000 for the first violation, $2,000 for the second violation, and $3,000 for each subsequent violation.  Under the new bill, the maximum penalty for damages in civil lawsuits filed by workers has increased to $5,000. If the Labor Commissioner has issued an Order to Comply against an employer who does not pay the money owed, the DOL can require them to post a bond or provide a list of their assets. If an employer fails to do so ten days after the appeal period, the Commissioner may bring a court case against them, and the failure to provide the list of assets can have a penalty imposed of $10,000. 15% in damages can be added to a judgment if the employer fails to pay in full within 90 days. The notification must be made using the official form published by the New York State Department of Labor.  Form LS 54 is available at www.labor.ny.gov.

Withholding requirements for non-resident partners

Many states require partnerships and limited liability companies to withhold estimated taxes from non-resident partners, but there are situations where certain partners may be exempt. Contact us for further information.

New Jersey unemployment and disability maximum earnings

Effective January 1, 2020, the New Jersey maximum earnings for computing state unemployment insurance (SUI), temporary disability insurance (TDI) and family leave insurance (FLI) will no longer be the same. New Jersey legislation enacted in 2019 (A 3975) separates the maximum earnings base used for TDI and FLI from the maximum earnings base used for SUI.

SUI maximum earnings base is $35,300 in 2020. It will increase to $36,200 in 2021.

TDI and FLI maximum earnings base is $134,900 in 2020. It will increase to $138,200 in 2021.

As a result of the separation of the maximum earnings bases, the maximum employee deductions are as follows:

2020

• SUI $150.03 ($35,300 * .425%)
• TDI $ 350.74 ($134,900 * .26%)
• FLI $ 215.84 ($134,900 * .16%)

2021

• SUI $153.85($36,200 * .425%)
• TDI $ 649.54($138,200 * .47%)
• FLI $ 386.96 ($138,200 * .28%)

New York State limited liability annual reports

Form IT-204-LL is required for each Limited Liability Partnership (LLP) and Limited Liability Company (LLC) organized and/or doing business in New York State, including disregarded entities. Also, every regular partnership that is required to file a New York State partnership return, doing business in New York State, and has New York source gross income for the preceding year of at least $1 million is required to file. The amount of the filing fee will be based on the New York source gross income for the tax year immediately preceding the tax year for which the fee is due. If an LLC or LLP did not have any New York Source gross income for the preceding tax year, the filing fee is $25. Returns and payments must be filed and paid electronically, and no extensions are permitted. Beginning on or after January 1, 2016, Form IT-204-LL is due on the fifteenth day of the third month following the close of the tax year of the partnership, LLC, LLP, or single-member LLC that is a disregarded entity. Therefore, a calendar-year-end tax-payer must file and make payments by March 15.

New York State Metropolitan Commuter Transportation Mobility Tax (MCMT)

The New York State appellate court ruled the MCTMT payroll tax to be constitutional.

Beginning with tax year 2015, all self-employed individuals paying MCTMT must do so with their personal income tax returns.  Estimated MCTMT payments must be made with their personal New York State estimated income tax payments.

The MCTMT payroll tax requires quarterly filing for employers in quarters in which the covered wages for employees exceed $312,500 for the calendar quarter, have made MCTMT payments during the calendar quarter, or have an MCTMT overpayment that is carried from a previous quarter. For the quarter ending December 31, 2020, payment is due by February 1, 2021.

The rest of the 2021 due dates are April 30, 2021, August 2, 2021, November 1, 2021, and January 31, 2022.

Employers are subject to MCTMT if the payroll expense for all covered employees exceeds $312,500 for the quarter.  The rates are applicable to payroll expense over $312,500 to $375,000 at .11% and over $375,000 to $437,500 at .23%. The original tax rate of .34% still applies when any quarterly payroll exceeds $437,500.

New York State sales and use tax

As of June 1, 2019, the state and local sales and use tax exemption for transportation, transmission or distribution of gas or electricity when purchased from someone other than the vendor of the gas or electricity is repealed. Therefore, the services of transporting, transmitting or distributing gas or electricity are subject to both state and local sales tax when the sale of the commodity is also subject to state and local sales tax. In addition to the state and local sales tax imposed on passenger car rentals, there will be an increase in the special tax on passenger car rentals. Within the Metropolitan Commuter Transportation District (MCTD), the tax rate will increase from 11% to 12% and outside the MCTD, the tax rate will increase from 6% to 12%. Candy, fruit and soft drinks sold for $1.50 or less through a vending machine are exempt from sales tax. On June 1, 2019 the tax law was expanded to add bottled water to the products that qualify for the exemption and increase the exemption amount to $2.00 or less for these items sold from a vending machine that accepts forms of payment other than coin or currency. On June 1, 2019, the existing sales and use tax exemption for cemetery monuments was expanded to include tangible property that will become a physical component of the monument.

Effective April 12, 2019 vendors are permitted to advertise, hold out or state to a retail purchaser or to the public that the vendor will pay the sales tax on behalf of a purchaser subject to the conditions that they expressly state on every bill, memorandum, receipt or other statement of the price given to the purchaser that they will pay the sales tax on behalf of the purchaser and that it separately states the amount of sales tax due that was not collected from the purchase.

As of June 1, 2019 marketplace providers were required to collect and remit sales tax on taxable sales of tangible personal property that they facilitate for marketplace sellers.

Effective December 1, 2019, the tax law established a 20% supplemental retail tax on vapor products.

The New York State Department of Taxation and Finance will continue to issue separate guidance on these changes.

States are increasing their audits relating to sales tax.  They are including many businesses which do not typically collect sales tax, such as medical practices and law firms, and often assess tax, penalties, and interest for non-payment of compensating use tax.  Since there is no statute of limitations when returns have not been filed, these audits often cover periods of six years.  Review your procedures in terms of reporting such use tax and evaluate whether your business should register and file use tax returns.  Please call our office if you have any questions in this area.

New Jersey sales and use tax rate change

The New Jersey Sales and Use Tax rate is 6.625% in 2020 and remains the same in 2021 as of this publication.

Pennsylvania Act 32

Act 32 simplifies and restructures the collection of local earned income taxes in the Commonwealth of Pennsylvania.  It requires all employers to withhold earned income taxes on behalf of all employees.  The applicable tax rate is the greater of the nonresident tax rate where the employee is employed or the resident tax rate in effect where the employee lives.  The Act applies to all Pennsylvania counties except Philadelphia, which is exempt from Act 32.  Philadelphia city withholding supersedes the provisions of Act 32.

All employers are required to register with the appropriate Certified Tax Collector in the area where they are located.

To determine the applicable tax collector for your place of business, go to www.munstatspa.dced.state.pa.us.com, and enter your county or municipality.

All employees need to complete a local earned income tax residency certification form which should be given to their employer, so they can withhold the correct amount of earned income tax.  This form, and withholding rates by address, can be obtained online at www.NewPA.com.

Pennsylvania unemployment employer wage base and employee contributions

The taxable wage base for employer contributions to the Pennsylvania Unemployment Compensation Fund in 2020 and thereafter is $10,000.

The withholding rate for employee contributions is .0006% in 2020. There is no cap on the amount of wages from which employee contributions are withheld.

New Jersey/Pennsylvania reciprocal income tax agreement

The New Jersey/Pennsylvania Reciprocal Income Tax agreement states that Pennsylvania residents who receive compensation from New Jersey sources are not subject to New Jersey income tax on those earnings. Under the agreement, a New Jersey employer is not required to withhold New Jersey income tax from compensation paid to its Pennsylvania resident employees who file Form NJ-165, Employee’s Certificate of Non-residence in New Jersey, with their employer. The reverse holds true for Pennsylvania employers with New Jersey resident employees. This agreement covers compensation only.

The 2016 withdrawal of the New Jersey and Pennsylvania reciprocal tax agreement was reversed in 2018. Taxpayers residing in either state, and working in the other, will still only file in their state of residence.

Pennsylvania has a flat 3.07% income tax rate, whereas New Jersey’s graduated income tax tops out at 8.97%.

New Jersey has six marginal income tax rates for individuals, ranging from 1.4% for those earning $20,000 or less to 8.97% for income greater than $500,000. There are seven rates for married couples filing joint returns. Without the reciprocity agreement, Pennsylvania residents would have had to pay higher taxes.

This guide is intended to be informational and to advise you of some highlights. It is not all-inclusive.

Please contact your Engagement Partner if you have any questions on either these year-end procedures or any other reporting requirements.

About Mazars entrepreneurial business services

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Contributors:

Jarred Berman                        Vincenzo DeMarco                Gina Ferrara                          Jalpa Dhebaria

Audre Lukosevicius                Luke Simonetti                      Maryann Richer                    Megan Greenberg

Chris Tracz                               Cathy Zappala                        Loraine Borrelli