With January well underway, the Christmas decorations have been stored for another year and we turn our attention to the next festive matter – tax season.
As an employer, there are many responsibilities to help you and your employees have a simple, straightforward, and successful tax season. The sooner you are on top of these, the easier and better it becomes for everyone.
New for the 2020 tax year is a redesigned W4 form. This form considers the impact of the Tax Cuts and Jobs Act from 2017 and has different income withholding requirements. This form must be used by any new hires from now on. Existing hires do not need to redo their W4. However, it is good tax practice to encourage staff to review their chosen withholdings every year and this should be done on the new W4. To help people make their choices, there is a paycheck calculator at www.irs.gov.
Keep an eye out for the Educational Correspondence – or EDCOR – notices from the Social Security Administration. This notice alerts you to any mismatches between employees’ names and social security numbers so you can check and fix them. If mismatches stay in the system, staff run the risk of not having their appropriate credits given to them. This could cause big problems for claiming benefits later.
Employer-Sponsored Health Coverage
For larger firms with 250 or more employees, make sure reporting requirements include the cost of Employer-Sponsored Health Coverage in Box 12 on the W2; this applies to any firm that filed above this number any time since 2015. Items that must be included are major medical, hospital indemnity or specific illness, and domestic partner included in gross income.
Optional reporting is available for some types of insurance. Employers with 50 or more full-time equivalent employees have reporting requirements on Form 1094-C and Form 1095-C. Form 1095-B can be used by employers with self-insured coverage.
Fringe benefits given to employees should be reported on the employee’s W2. Examples of common fringe benefits can include company car personal use, group term life insurance above $50,000, employer Health Savings Account contributions, and cash and non-cash gifts.
Changes in the Social Security Wage Base for 2021 see the base rise to $142,800, meaning the maximum Social Security tax for both employees and employers is $8,853.60, but there remains no limit for Medicare. Employees on more than $200,000 are subjected to a further 0.9 percent Medicare tax, unmatched.
Finally, contribution maximums for retirement vehicles in 2021 are: 401(k) and 403(b), $19,500, with a catch-up allowance for over-50s of $6,500; Simple IRA, $13,500 with a $3,000 catch-up; Health Savings Account, self-only $3,600, family $7,200, catch-up for over-55s $1,000.