Employment Tax

Withholding and paying FICA tax on nonqualified deferred compensation can be a tricky business.  Because special timing rules apply to FICA tax, employers can’t simply withhold and pay FICA tax when they pay deferred compensation to the employee.  Instead, FICA tax is due when the deferred compensation vests (or, in some cases, when the amount of the deferred compensation can be determined).

It is not always easy to tell when these triggering events occur.  In fact, it is sometimes hard to tell whether compensation is “deferred compensation” that is subject to the special timing rules.  Employers faced with these complications often discover long after the fact that they have failed to withhold and pay FICA tax on deferred compensation when the tax was due.  The additional 0.9% Medicare tax introduced in 2013 makes these errors much more difficult to correct.
Continue Reading New Medicare Tax Makes FICA Errors Harder to Correct

The Affordable Care Act created two new taxes for individuals whose income exceeds $200,000 ($250,000 for married couples filing joint returns).  Employees must pay an additional 0.9% Medicare tax on wages in excess of these dollar thresholds.  Individuals whose adjusted gross income exceeds the dollar thresholds also must pay a 3.8% tax on their net investment income.

Both taxes became effective in 2013, but high-income employees will pay the taxes for the first time next year, when they file their 2013 tax returns.  Employers are required to withhold the 0.9% additional Medicare tax, and are liable for any amount they fail to withhold.

The IRS recently published a final regulation and an updated set of FAQs interpreting the additional Medicare tax.  The IRS also published a final regulation, a new proposed regulation, and updated FAQs interpreting the tax on net investment income.
Continue Reading IRS Issues Guidance on New Medicare Taxes for High-Income Employees

Last Friday, the government asked the Supreme Court to review the Sixth Circuit’s decision in United States v. Quality Stores.  In that decision, the Sixth Circuit sided with taxpayers and concluded that certain severance payments that qualify as supplemental unemployment compensation benefit payments (or “SUB” payments) for federal income tax…
Continue Reading U.S. Seeks Supreme Court Review of Decision that Severance Pay for Layoffs Is Not Subject to FICA Tax

Employers are deluged with annual reporting requirements for their compensation and benefit plans.  One requirement that often flies under the radar is the obligation to furnish and file Form 3921 for exercises of incentive stock options (“ISOs”) and Form 3922 for certain shares purchased under an employee stock purchase plan (“ESPP”).  The deadline for furnishing these forms to employees is right around the corner: January 31, 2013.  The deadline for filing these forms with the IRS is a month or two later.
Continue Reading Statutory Stock Options: We Have To Report What? And When?

If widespread news reports are any indication, many people—employers and employees alike—are thinking about increased taxes in 2013 and what can be done to minimize their impact.

Some tax increases in 2013 are a sure thing.  For example, the employee share of Medicare taxes will increase to 2.35% for wages in excess of $250,000 (for married individuals filing jointly), $125,000 (for married individuals filing separately), and $200,000 (in any other case).

But, even as the end of the year looms, it is unclear whether other potential tax increases will take effect.  If the so-called Bush tax cuts expire, income tax rates will increase.  If the “payroll tax holiday” is not extended, the employee share of Social Security taxes will increase to 6.2% from its current 4.2%.

Due to the uncertain tax landscape for 2013, employers may wish to consider accelerating certain payments and awards into 2012 when taxes will generally be lower.  However, in so doing, employers should be careful to avoid certain potential pitfalls. 
Continue Reading Accelerating Compensation into 2012 to Avoid 2013 Tax Increases

Today the United States Court of Appeals for the Sixth Circuit sided with taxpayers in affirming the decision of a district court that certain severance payments that qualify as supplemental unemployment compensation benefit payments (or “SUB” payments) for federal income tax purposes are not subject to tax under the Federal…
Continue Reading Severance Pay for Layoffs Not Subject to FICA Tax, Sixth Circuit Rules