Asserting that many employers have improperly claimed Employee Retention Tax Credit (ERTC) refunds, the Internal Revenue Service (IRS) released two new announcements that address ERTC claims. Following these new IRS announcements, most employers should consult their legal and tax advisors and consider filing protective refund claims to preserve their employment and income tax positions and to defend against potential IRS penalties and interest. Read more here.
SUB-Pay Plans: An Alternative to Severance Programs While the coronavirus pandemic wreaks havoc on the economy and jobs, employers consider disaster-related employee benefit structures, such as easily administered qualified disaster assistance relief programs and the financially attractive severance alternative known as “supplemental unemployment benefit plans” or “SUB-pay plans.” Compared to the typical severance program, restructuring a temporary or permanent layoff program as a SUB-pay plan can yield financial and tax savings exceeding 30% of an employer's typical severance costs while also providing FICA tax savings to employees of 7.65%. Access full article.
Tax-exempt employers face a matrix of tax and disclosure issues in designing an appropriate supplement retirement program. This resource intends to examine the income tax, payroll tax and Form 990 reporting aspects of the major plans currently available to tax-exempt employers, and review those major plans from the reference point of several major design considerations. Continue Reading.
Sponsors of nonqualified deferred compensation plans should pay close attention to the special tax withholding rules under the Federal Insurance Contributions Act (FICA) to avoid paying interest and penalties, and potentially being sued by plan participants. FICA tax on nonqualified deferred compensation must be withheld when compensation vests, not later when actually paid out. Failure to withhold FICA tax at the time of vesting will cause the compensation plus any earnings to be subject to FICA tax later as it is distributed to the participant, potentially resulting in higher overall FICA taxes for both the employer and the participant. As shown by the case of Davidson v. Henkel, employees may even successfully sue the employer for causing them to receive lower benefits due to the higher tax burden created by a failure to follow the correct withholding rules. This article explores the common FICA and Additional Medicare Tax withholding errors and the...
The Internal Revenue Service has issued correction procedures for Forms 941 and W-2 in response to the retroactive increase in transit benefit exclusions. Read the full article.
The Supreme Court of the United States recently heard arguments in its review of the U.S. Court of Appeals for the Sixth Circuit’s Quality Stores decision. At issue in Quality Stores is whether certain severance payments made to employees following an involuntary separation, but which are not linked to state unemployment benefits, are “wages” subject to Federal Insurance Contributions Act (FICA) tax. While the Supreme Court is reviewing the Quality Stores decision, there is an impending April 15, 2014, deadline for employers to file a protective refund claim for 2010 employment taxes for FICA taxes paid on severance payments. Click here to read the full article.
by Maureen O'Brien and Ruth Wimer On January 11, 2013, the Internal Revenue Service published Notice 2013-8 providing a special administrative procedure for employers with respect to 2012 transit pass benefits. The American Taxpayer Relief Act retroactively increased the monthly transit benefit exclusion under Section 132(f)(2)(A) of the Internal Revenue Code for commuter highway vehicles or transit passes from $125 per participating employee to $240 per participating employee for the 2012 calendar year (the monthly transit benefit exclusion for parking remains at $240). The notice addresses employers’ questions regarding the retroactive application of the increased exclusion, which can result in both decreased FICA and federal income tax liability. Employers acting promptly, in many cases by January 31, may have less administrative burden in obtaining a benefit for themselves and their employees with respect to the retroactive increase for...
by Robin Greenhouse, Andrew Liazos and Ruth Wimer Severance pay due to an involuntary separation from employment resulting from a reduction in force, plant shutdown or similar condition may be exempt from FICA taxes. As we reported in September 2012, the U.S. Court of Appeals for the Sixth Circuit found in Quality Stores that severance pay is not required to be tied to continued eligibility for unemployment benefits in order to be exempt from FICA. (Click here for more details regarding the Quality Stores decision.) Shortly after this decision the Internal Revenue Service (IRS) requested that the Sixth Circuit reconsider its decision in an en banc review (i.e., a hearing before all judges on the circuit court). Earlier this month, the Sixth Circuit denied this request. The Quality Stores decision creates a clear split with the U.S. Court of Appeals for the Federal Circuit. In light of the Sixth Circuit’s denial, the IRS...
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