Does your organization have a formalized program under which it offers employees paid time off for an illness or family emergency? If not, there’s now an excellent reason to consider establishing one: The Tax Cuts and Jobs Act, passed late last year, created a tax credit for qualifying employers that begin providing paid family and medical leave to their employees.

Qualifications and percentages

The credit is available only in 2018 and 2019. To qualify, employers must grant full-time employees at least two weeks of annual family and medical leave during which they receive at least half of their normal wages. In addition, all less-than-full-time qualifying employees must receive a commensurate amount of paid leave on a pro rata basis.

Ordinary paid leave that employees are already entitled to doesn’t qualify for the tax incentive. For example, if you already provide full-time employees with, say, five days of paid sick time per year, you can’t claim the credit for that paid time off. Similarly, if you’re already subject to mandatory paid sick leave requirements by your state or local government, you won’t be able to claim the new tax credit for leave paid under those requirements.

Employees whose paid family and medical leave is covered by this provision must have worked for the employer for at least one year, and not had pay in the preceding year exceeding 60% of the highly compensated employee threshold.

The credit is equal to a minimum of 12.5% of the employee’s wages paid during that leave. That credit amount increases to the extent that employees are paid more than the minimum 50% of their normal compensation, to a maximum of 25% of wages paid. The maximum amount of paid family and medical leave that can be eligible for the tax credit is 12 weeks per year.

Competitive advantage

Establishing a paid family and medical leave program can boost morale and serve as a point in your favor when competing for job candidates. But additional rules and limits may apply beyond the points discussed here. Please contact us for further details and assistance.

For employers, managing payroll smoothly and properly is a delicate, critical matter. There may be no quicker way to turn a happy employee into a disgruntled one than by mishandling his or her paycheck.

This year, employers have an additional challenge to contend with in this area. When Congress passed and the President signed into law the Tax Cuts and Jobs Act (TCJA) late last year, it meant the IRS withholding tables would have to be updated. And now they have been.

Incorporate the changes

As you’re no doubt aware, the withholding tables enable employers (or their payroll services) to determine the amount to withhold from employees’ paychecks in light of their wages, marital status and number of withholding allowances.

The revised tables reflect the TCJA’s increase to the standard deduction, suspension of personal exemptions, and changes in tax rates and brackets. The new withholding tables are also designed to work with the Forms W-4 that employers already have on file for their employees. In other words, your employees don’t need to complete any new forms or take any other action now.

Employers, on the other hand, must move to incorporate the new tables into their payroll systems as soon as possible — and no later than February 15, 2018. (Continue to use the 2017 withholding tables until you adopt the new figures.)

Communicate with employees

As you adopt the new withholding tables, it’s a good idea to also communicate the changes and their implications to your employees.

The IRS expects that many working taxpayers will see increases in their paychecks after the new tables are instituted in February. But it’s possible that some of your employees could find themselves unexpectedly hit with bigger income tax bills when it comes time to file their 2018 tax returns. This is because the TCJA eliminates or restricts many popular tax breaks a lot of taxpayers have claimed on their returns in past years. In some cases, lower rates and a higher standard deduction won’t make up for the diminished breaks.

Make sure your employees are aware that it’s their responsibility to alert you, their employer, of any adjustments they’d like to make to avoid under- or overwitholding of taxes from their paychecks. You might point out that the IRS is updating its withholding calculator (available at irs.gov) to assist taxpayers in reviewing their situations. The agency expects the new calculator to be available by the end of February and reflect changes in available itemized deductions, as well as several other important tax-related points.

Rise to the challenge

Getting payroll right matters — significantly. Although the TCJA brought some potentially beneficial tax-saving opportunities for employers, it also ushered in some challenges. Please contact our firm for more information.

Do you have employees in their late 60s? If so, are they aware of the required minimum distribution (RMD) obligations beginning at age 70½ for their individual IRAs and possibly their 401(k) plans? It’s important that they know what to expect when they reach that age so they can avoid a potentially whopping penalty. As their employer, you can stand to benefit from helping them out with a friendly reminder.

IRAs vs. 401(k)s

Generally, IRA account holders must take RMDs on reaching age 70½. However, the first payment can be delayed until April 1 of the year following the year in which the individual turns 70½. (For inherited IRAs, RMDs are generally required earlier.)

401(k) accounts are a different story. Account holders don’t have to begin taking distributions from their 401(k)s if they’re still working for the employer sponsoring the plan. Although the regulations don’t state how many hours employees need to work to postpone 401(k) RMDs, they must be doing legitimate work and receiving wages reported on a W-2 form.

There’s an important exception, however: Workers who own at least 5% of the company must begin taking RMDs from the 401(k) beginning at 70½, regardless of their work status.

If someone has multiple IRAs, it doesn’t matter which one he or she takes RMDs from so long as the total amount reflects their aggregate IRA assets. In contrast, RMDs based on 401(k) plan assets must be taken specifically from the 401(k) plan account.

Other pertinent facts

Here are some additional RMD facts you can share with employees approaching retirement:

Calculation of RMD. The IRS determines how RMD amounts change as the account holder ages, using a formula and life expectancy tables. For example, at age 72, the IRS “distribution period” is 26.5, meaning that the IRS assumes that the individual will live another 26½ years. Thus, he or she must withdraw the percentage of the IRA or 401(k) account that is 1 divided by 26.5 (3.77%).

Beneficiary spouses. Account holders who have a beneficiary spouse at least 10 years younger are subject to a different RMD formula that allows them to take out smaller amounts to preserve retirement assets for the younger spouse.

Tax penalty. The penalty for withdrawing less than the RMD amount is 50% of the portion that should have been withdrawn but wasn’t.

Form of distribution. RMDs can be in cash or be taken in stock shares whose value is the same as the RMD amount. Although this can be administratively burdensome for you as the employer, it allows your employees to defer incurring brokerage commissions on securities they don’t want to sell.

Informed employees

Remember, informed employees are happy employees. Educating your older employees about their RMD obligations can help maintain strong morale among these employees and demonstrate to your entire workforce (and job candidates) that you care about retirement planning. Let us know how we can help with this important effort.

Under the Affordable Care Act (ACA), certain employers must report health care plan information to the IRS and employees. Specifically, Forms 1094/1095-B (B Forms) and Forms 1094/1095-C (C Forms) may need to be submitted for the 2017 tax year. The agency recently extended submission deadlines for these forms under some circumstances. Let’s delve into the details.

Background

The B Forms are filed by minimum essential coverage providers — mostly insurers and government-sponsored programs, but also some self-insuring employers and others. The C Forms are filed by applicable large employers (ALEs — generally, employers that employed 50 or more full-time employees or the equivalent during the previous year) to provide information the IRS needs to administer the ACA’s employer shared responsibility and premium tax credit provisions. ALEs with self-insured health plans also report coverage information on Form 1095-C. Forms 1095-B and 1095-C must also be furnished to employees.

General extension

The IRS recently issued Notice 2018-06 to announce limited relief for information reporting on Forms 1094 and 1095 for the 2017 tax year. The deadline for furnishing Forms 1095-B and 1095-C to employees has been extended by 30 days, from January 31 to March 2, 2018. Because of this automatic extension, the discretionary 30-day extension isn’t available, and no further extensions may be obtained.

The notice doesn’t, however, extend the due date for filing Forms 1094-B and 1094-C (and accompanying Forms 1095) with the IRS. Accordingly, the deadlines remain February 28, 2018, for paper filings and April 2, 2018, for electronic filings. (Electronic filing is mandatory for employers required to file 250 or more Forms 1095.) However, filers may obtain an automatic 30-day extension by filing Form 8809 on or before the regular due date.

Good faith relief

In addition, the IRS will again provide penalty relief for employers that can show they have made good faith efforts at compliance. No penalties will be imposed on employers that report incorrect or incomplete information — either on statements furnished to employees or returns filed with the IRS — if they can show they made good faith efforts to comply with the reporting requirements.

The notice specifies that the relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other required information. Penalty relief isn’t available to employers that:

• Fail to furnish statements or file returns,
• Miss an applicable deadline, or
• Otherwise don’t make good faith efforts to comply.

Evidence of good faith efforts may include gathering necessary data and transmitting it to a third party to prepare the required reports, testing the ability to transmit data to the IRS, and taking steps to ensure compliance for the 2018 tax year.

Total compliance

If your organization self-insures or is defined as an ALE for the 2017 tax year, make sure you’re in total compliance with the ACA’s information reporting requirements. Our firm can help you with the pertinent details.