The W-2 reporting season is fast approaching! The payroll processors at Baldwin CPAs have the responsibility of gathering data and correctly reporting taxable items (other than wages/salaries) on the W-2. During payroll onboarding, we ask a lot of questions so we can efficiently gather the correct information to accurately process payroll and ultimately produce the annual W-2. The following three situations have an impact on W-2’s and company reporting.
Company Vehicle Usage
When a company allows an employee or business owner to drive a company-owned vehicle, the mileage usage must be reported as a taxable fringe benefit on the employee’s W-2. There are multiple valuation rules which determine the method to calculate personal usage. To calculate the taxable benefit value, we have to know several basic items: 1) The date of purchase, make, model and FMV (Fair Market Value) of the vehicle, 2) total miles driven for the year, 3) the number of miles or % of miles driven that was for personal use (not specifically for business use), 4) when the vehicle became available for the employee to use, and 5) is the vehicle a listed asset on the Depreciation Schedule of the corporate tax return? Using the IRS Annual Lease Value Table, we calculate the taxable value and then include that in the Federal, FICA/Medicare, State, and Local wages. Thus, keeping the most up-to-date records regarding the personal miles driven is important.
S-Corp Owners Health Insurance
S-Corp owner’s health insurance includes a multitude of items, those including health, dental, vision, accident, and HSA-Employer contributions paid by the company for 2% or more shareholders of an S corporation (this includes premiums paid for spouse, parents, children and grandchildren). Insurances that are NOT included in this reporting group are third party insurances (such as AFLAC), short-term/long-term disability, and cancer policies. This total amount is taxable to the Federal, State, and Local wages. It is exempt from Social Security and Medicare wages. The total insurance premium is also listed in Box 14 as “S Corp Insurance” so the owner-employee can report it on their personal income tax return. In addition, the company gets to expense the premiums as “Officer Compensation” since it has been added to the owner’s taxable wages.
What defines a Household Employee? Examples include: someone you hire to do household work and you control not only what work is done, but how it is done, and you provide all the supplies. Specific examples are babysitters, butlers, caretakers, cooks, domestic workers, drivers, nannies, just to name a few and the service must be performed in and around your private home. This does not include wages you pay to your spouse, child under age 21, or parent. The employee must also be eligible to work in the United States. If you decide to hire a household employee, you must apply for a federal employer identification number (EIN). Usually, your full name is used as the “taxpayer name”. You should withhold Social Security and Medicare taxes if you are going to pay your employee cash wages of $2,400 or more in 2022. You are not required to withhold federal income tax unless the employee chooses and completes a W-4 form. In Kentucky, the wages are exempt from tax. However, if the employee wants to voluntarily withhold taxes, then you must apply for a KY withholding account number. The wages may also be taxable to your locality where you live.
You may be thinking “I will never be able to remember all this” but guess what, we do! This is what our Elevate Department at Baldwin CPAs does every day. We would be glad to meet with you to discuss your payroll needs and devise a plan of action to assist you with the ever-changing payroll reporting requirements.
More information can be found on the IRS website at www.irs.gov. Search the forms and publications for Publication 926 – Household Employer’s Tax Guide, and Publication 15-B, Employer’s Tax Guide to Fringe Benefits.
This article was written by Frances Johnson. Frances is a Senior Payroll Specialist with Baldwin CPAs. For questions or help developing payroll for your organization, reach out to email@example.com