The presentation covers: - FICA on severance - Fiscal cliff legislation – impacts for 2013 and beyond - The additional Medicare tax began this year - Reporting change in responsible party to the IRS - 2010 HIRE Act – IRS notices and refund deadline - Same-sex partner benefits in wake of Supreme Court ruling - Affordable Care Act – what to know about 2014 - Unemployment insurance – new laws mean a new approach - States go retro in 2013 - Pay card controversy – seven things employers should do

1. Employment tax year in review
13 November 2013

2. Disclaimer
►
This material has been prepared for general informational purposes only
and is not intended to be relied upon as accounting, tax, or other
professional advice. Please refer to your advisors for specific advice.
►
The views expressed by the presenters are not necessarily those of
Ernst & Young LLP.
►
This presentation is © 2013 Ernst & Young LLP. All Rights Reserved.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality
services we deliver help build trust and confidence in the capital markets and in economies the world
over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders.
In so doing, we play a critical role in building a better working world for our people, for our clients and
for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms, of Ernst & Young
Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company
limited by guarantee, does not provide services to clients. For more information about our organization,
please visit ey.com.
Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.
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Employment tax year in review

3. Circular 230 disclaimer
Any US tax advice contained herein was not intended or
written to be used, and cannot be used, for the purpose of
avoiding penalties that may be imposed under the Internal
Revenue Code or applicable state or local tax law
provisions.
► These slides are for educational purposes only and are not
intended, and should not be relied upon, as accounting
advice.
►
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Employment tax year in review

4. Today’s moderator
Gregory Carver
Ernst & Young LLP
Employment Tax Advisory Services
Join today’s Twitter discussion:
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Employment tax year in review
#yearend

5. Today’s presenters
Peter Berard
Kenneth Hausser
Debera Salam
Deborah Spyker
Ernst & Young LLP
Employment Tax
Advisory Services
Ernst & Young LLP
Employment Tax
Advisory Services
Ernst & Young LLP
Employment Tax
Advisory Services
Ernst & Young LLP
Employment Tax
Advisory Services
The information contained herein is a summary in nature. Viewers should consult their own professional advisors to address their individual
circumstances and concerns.
Page 5
Employment tax year in review

6. Today’s agenda
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FICA on severance
Fiscal cliff legislation – impacts for 2013 and beyond
The additional Medicare tax began this year
Reporting change in responsible party to the IRS
2010 HIRE Act – IRS notices and refund deadline
Same-sex partner benefits in wake of Supreme Court ruling
Affordable Care Act – what to know about 2014
Unemployment insurance – new laws mean a new approach
States go retro in 2013
Pay card controversy – seven things employers should do
Join today’s Twitter discussion:
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#yearend
Employment tax year in review

7. FICA on severance? Supreme Court will
decide
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Employment tax year in review

8. The trail of challenges
►
►
On 7 September 2012, the Sixth Circuit Court of Appeals affirmed the
2010 decision of the Michigan District Court that Quality Stores is
entitled to a refund of the Social Security/Medicare tax that it collected
and paid on severance payments (United States of America v. Quality
Stores Inc., et al., No. 10-1563)
In 2008, the Federal Circuit ruled in favor of the IRS in CSX,
concluding that similar severance-type payments were subject to FICA
(CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008))
►
►
►
CSX did not request a rehearing, and on 11 August 2008, the opinion was
considered final
The recent Quality Stores decision creates a split in the circuits
The Supreme Court agreed to hear the case on 1 October 2013 and
oral arguments are scheduled for 14 January 2014
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Employment tax year in review

9. Filing protective refund claims
►
Employers are potentially eligible for a refund of FICA on severance
pay pending the outcome of the Quality Stores decision:
►
►
►
►
A protective claim must be filed within the statute of limitations
The FICA tax must be withheld and paid to the IRS according to the current
tax rules on all severance payments, using the protective claim process to
request a refund after the fact
There must be at least a reasonable basis (a position with disclosure) for
filing the protective claim (e.g., a court decision, such as Quality Stores)
The deadline for filing protective refund claims for severance
payments made in 2010 is 15 April 2014
►
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Employers should consider also filing protective refund claims for any
payments made in 2011, 2012 and 2013
Employment tax year in review

10. Keeping refund claims active
►
The IRS began disallowing CSX-type and Quality claims outside of
the 6th Circuit in 2010
►
►
This means that for certain taxpayers, the two-year period is expiring
If taxpayers want to maintain their protective claims for refund without
bringing suit in court, they can file Form 907, Agreement to Extend the Time
to Bring Suit
►
►
The IRS has been signing these agreements for CSX-types of refund
disallowances while the Sixth Circuit’s Quality Stores opinion was pending
►
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Under IRC §6532(a)(2), the two-year period to bring suit can be extended to
a specified date if the IRS and the taxpayer agree in writing to the extension
and Form 907 is used for this purpose
Forms must be signed by IRS before expiration of the two-year period
Employment tax year in review

11. Polling question
We have taken these steps in response to the
Quality Stores case:
A.
We filed protective FICA refund claims
B.
We have identified how we will perfect those claims
C.
We need more information
D.
Don’t know/does not apply (EY, faculty, alumni, other)
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Employment tax year in review

12. Federal legislation affecting 2013
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Employment tax year in review

13. Federal income tax increase in 2013
►
The 2012 tax rates of 10%, 15%, 25%, 28%, 33% and 35% are
maintained under the American Taxpayer Relief Act (ATRA), except:
►
►
Federal income tax withholding rates for 2013:
►
►
►
►
For wages in excess of $400,000 (individual filers), $425,000 (heads of
households) and $450,000 (married filing jointly), the top rate increased to
39.6% effective with wages paid on and after 1 January 2013
Optional supplemental withholding remains 25%
Mandatory rate for supplemental wages over $1m increased to 39.6%
Backup tax remains at 28% (applies to nonemployee compensation)
Note that employers were not required to implement these rates
until 15 February 2013, resulting in potential underwithholding for
some employees
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Employment tax year in review

14. Social Security tax increase in 2013
►
The employee withholding rate of 4.2% returned to 6.2% in 2013
►
►
The 2013 wage base increased from $110,100 to $113,700
►
►
The employer rate has remained at 6.2%
The 2013 maximum employee Social Security tax increases by $2,425.20
(2012 maximum of $4,624.20 vs. 2013 maximum of $7,049.40)
Employers were required to implement the increase in withholding
no later than 15 February 2013, and pay any adjustments to IRS by
31 March 2013
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Employment tax year in review

15. American Taxpayer Relief Act extenders
Provision
Description
Expiration date
Expense tax credit for employer
child care assistance
A credit of up to $150,000 for
acquiring, constructing,
refurbishing or expanding a
child care facility
31 December 2013
Temporary
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Employment tax year in review

16. American Taxpayer Relief Act extenders
Provision
Description
Expiration date
Undergraduate and graduatelevel education assistance
Exclusion of up to $5,250 per
year for education not related to
the current job
Permanent
Adoption assistance
Effective in 2012, exclude up to
$12,170 per adoption and
$12,970 for 2013
Additional $10,000
(as adjusted for inflation)
per adoption made permanent
Page 16
Employment tax year in review

17. American Taxpayer Relief Act extenders
Provision
Description
Expiration date
Work Opportunity Tax Credit
(WOTC)
Other than certain
veteran groups
Retroactive to 1 January 2012,
and through 31 December 2013
Renew or reinstate the parity
between parking and transit
benefits: for 2012, $240 for
mass transit and $240 for
parking, increasing to $245
each for 2013
Retroactive to 1 January 2012,
and through 31 December 2013
Temporary and
retroactive
Mass transit benefits
Temporary and
retroactive
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Employment tax year in review

18. 2012 wage adjustments for transit benefits
►
The retroactive increase in the 2012 monthly limit for mass transit/
van pool benefits from $125 to $240 could have resulted in the
overstatement of 2012 taxable wages
►
►
The IRS clarifies that an overstatement of taxable wages may be claimed
only if the transit benefits were paid directly by employers or paid by
employees with pretax and after-tax payroll deductions
The 2013 rates are $245 for parking and $245 for transit
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Employment tax year in review

19. 2012 wage adjustments for transit benefits
►
Example 1: In 2012, employee elected to have $240 per month
deducted from wages – $125 was deducted on a pretax basis and
$115 was taken after tax
Result: His wages were overstated by $115 each month
►
Example 2: In 2012, employee elected to have $125 per month
deducted from wages on a pretax basis, and he purchased additional
transit benefits each month of $115 with his personal credit card
Result: His taxable wages were not overstated in 2012, and he may not claim
a federal income or FICA tax refund for the transit benefits purchased by
personal credit card
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Employment tax year in review

20. 2012 wage adjustments for transit benefits
►
Through 31 January 2013, employers had three options for
dealing with 2012 overstatement of taxable wages and the
related FICA refunds:
►
►
►
►
Special procedure
Normal procedure
Waiver of right to claim FICA refunds
After 31 January 2013, employers have two options:
►
►
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Normal procedure
Waiver of right to claim FICA refunds
Employment tax year in review

21. 2012 transit benefit overstatements –
special procedure (available only through 31 January 2013)
FICA refund
employee consent
letter
Form
W-2/W-2c and
Federal Income Tax
(FIT)
Show reduction in
FIT/FICA wages on
Form W-2, boxes 1,
3 and 5
Show reduction in FICA
taxes in boxes 4 and 6
when FICA refund paid
to employee
Form 941
Page 21
Not required
Show 2012 total FICA
wage adjustments on
2012 fourth-quarter
return
Show 2012 FICA tax
adjustments (and claim
for refund) on 2012
fourth-quarter return
Employment tax year in review

22. State cautionary note on transit benefits
►
State and local income tax jurisdictions may not couple with Internal
Revenue Code (IRC) on transit benefits
►
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It is important to know the state income tax rules on transit benefits before
making adjustments to the 2012 Form W-2 in boxes 16 or 18
Example 1: For California income tax purposes and for 2012 and 2013,
there is no monthly limit on the amount of transit benefits excluded
from wages
Example 2: For Massachusetts income tax purposes and for 2012 and
2013, only $125 per month is excluded from taxable wages
Employment tax year in review

23. 2014 rates and limits
Category
2014 limit
Social Security wage base
$117,000/year
Employee pretax contributions to
qualified retirement plan
$ 17,500/year
Qualified parking
$
250/month
Commuter highway vehicle/transit pass
$
130/month
Adoption assistance
$ 13,190/adoption
Health FSA employee pretax
$
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2,500/year
Employment tax year in review

24. New Medicare taxes began in 2013
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Employment tax year in review

25. Two new Medicare taxes apply
Additional Medicare tax of 0.9%
►
►
►
►
Applies to earned income (wages)
Employers withhold on wages in excess
of $200,000
There is no employer contribution
This tax is in addition to the 1.45%
Medicare tax employees already pay
(and that employers match)
Net investment income tax (NIIT)
of 3.8%
►
Applies to unearned income in these
categories:
►
►
►
Interest, dividends, rents and annuities
not derived in the ordinary course of a
trade or business
Trade or business income from passive
activities or from trading in financial
instruments or commodities
Net gains from the disposition of
property not used in a trade or business
Both the 0.9% additional Medicare tax and the NIIT apply to covered earnings in excess of
$125,000 for married filing separately, $200,000 for single filers and $250,000 for joint filers
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Employment tax year in review

26. Additional Medicare Tax considerations
Additional Medicare tax employer reporting
►
The additional Medicare tax is not separately
reported on Form W-2
►
►
Most employers report this tax separately on pay stubs
Form 941 includes separate line for the additional
Medicare tax
►
►
Liability for tax not withheld is reduced by amount of
tax employees paid directly to the IRS
►
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Failure to withhold subjects the employer to penalties
After close of calendar year, employer may not adjust
for 0.9% and is no longer liable for additional Medicare
tax but may be liable for penalties for failure to withhold
Employment tax year in review

27. Medicare tax employee considerations
►
►
Employees are liable to pay to the IRS additional Medicare tax not
withheld by employers and the NIIT of 3.8% on unearned income
The difference in the two Medicare tax rates may highlight questions
about those benefits included in wages and those that are not
►
►
►
Additional Medicare tax of 0.9% applies to nonqualified deferred
compensation based on the same FICA timing rules that apply to Social
Security tax and the 1.45% Medicare tax
Some investment-type income, such as restricted stock awards, are subject
to the 0.9% additional Medicare tax at time of vesting, but income derived
after vesting is excluded from wages/ordinary income, and subsequent
capital gain income may be subject to the 3.8% NIIT
These issues should be taken into account when reviewing the need
for Form W-4 changes and/or estimated tax payment requirements
Page 27
Employment tax year in review

28. Employer 2013 Medicare tax implementation
considerations
Gross-up and
wage repayments
Page 28
Inform employees of the new tax changes
►
Remind employees that what you withhold could be too
high or too low; Form W-4 can be revised accordingly
Consider capturing the additional Medicare tax withheld
in Form W-2, box 14
►
Also consider showing Medicare and additional
Medicare tax (show “Med surcharge” withholding on the
employee pay stub)
►
Recordkeeping
►
►
Employee
communications
Include the additional Medicare tax (and increase in top
income tax rate) in gross-up calculations and consider
the budgetary impact
Consider revising wage repayment agreements to
include the fact that the employer cannot refund
withholding of the additional Medicare tax in subsequent
calendar year
►
Employment tax year in review

29. IRS requires responsible party information in
2014
Page 29
Employment tax year in review

30. IRS requires reporting of change in responsible
party (as part of EIN application updates)
►
►
►
In TD 9617 the IRS requires any person or entity assigned an
Employer Identification Number (EIN) to provide updated responsible
party information
The IRS has now released revised Form 8822-B, Change of Address
or Responsible Party—Business, for this purpose
Beginning 1 January 2014, any person or entity with an EIN is
required to file Form 8822-B, boxes 8a through 9b, to report any
changes to the identity of their responsible party
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Employment tax year in review

31. Who is a responsible party?
Business Type Responsible party is the…
Corporation
Principal officer
Partnership
General partner
Disregarded entity
Owner (if the disregarded entity is owned by a
corporation, enter corporation's name and EIN)
Trust
Grantor, owner, or trustor
Page 31
Employment tax year in review

32. Remember when …
Page 32
Employment tax year in review

33. We had employment tax stimulus?
►
The HIRE Act of 2010
►
►
►
►
►
Provided employers with a exclusion from the 6.2% Social Security tax on
wages paid to the long-term unemployed
The credit applied only for tax year 2010 and was claimed on the secondthrough fourth-quarter Forms 941
The wages on which the credit was claimed were required to be reported
on Form W-2, box 12, Code CC
The deadline for claiming the credit is 15 April 2014
IRS is now sending Combined Annual Wage Reporting (CAWR)
notices where Form 941 HIRE Act are wages are greater than wages
reported on Form W-2, Code CC
►
►
Page 33
If the error is not corrected by sending in Forms 941-X or Forms W-2c,
IRS will charge back the 6.2% plus penalty and interest
The corrections must be made by 15 April 2014 (sooner is better)
Employment tax year in review

34. Same-sex partner benefits in wake of
Windsor
Page 34
Employment tax year in review

35. Court rules for equal tax treatment of samesex married couples
►
►
Section 3 of the Defense of Marriage Act (DOMA), enacted on
21 September 1996, provides that, for purposes of interpreting federal
laws, including the IRC, the term “spouse” means only a “person of the
opposite sex who is a husband or wife” within a “legal union between
one man and one woman”
In United States v. Windsor, the US Supreme Court ruled that
disregarding a same-sex spouse lawfully married under state law
violates the Fifth Amendment rights of the same-sex spouse
Page 35
Employment tax year in review

36. The Windsor decision has broad implications
Page 36
Employment tax year in review

37. Key highlights of Treasury/IRS guidance
►
In Revenue Ruling 2013-17, the IRS makes these relevant
stipulations:
Refunds
apply for all
open tax
years
Civil unions
and similar
do not meet
marriage
definition
Page 37
Qualified
retirement
plans must
comply in
operation
effective 16
September
2013
Place of
celebration
governs
Employment tax year in review

38. Retroactive refunds are governed by statute
of limitations
►
Massachusetts
recognizes samesex marriage
►
► IRS
►
statute of limitations
expires on 15 April 2014
District of Columbia
recognizes same-sex
domestic partners
1992
► Section
1996
3 of DOMA
is enacted
Page 38
2004
►
2009
2010
Numerous
protective
refund claims
are filed in 2013
to keep statute
open for 2009
Employment tax year in review
Supreme Court
overturns
Section 3 of
DOMA
2013

39. Fringe benefits currently in scope for
retroactive refunds
IRC Section
Applicable fringe benefit(s)
106
Health and accident benefits including employee
pretax contributions under a Section 125 plan,
health savings accounts, health reimbursement
arrangements and long-term care
117(d)
Qualified scholarships
119
Meals and lodging for employer’s convenience
129
Dependent care assistance
132
No-additional-cost services and qualified
employee discounts
Page 39
Employment tax year in review

40. When does federal or state income tax apply
to same-sex partner benefits?
Page 40
Employment tax year in review

41. State payroll tax analysis
►
Some states have taken a unique position on fringe benefits
►
►
►
Example:
Wisconsin says that if a health savings account (HSA) allows
reimbursements to a same-sex spouse, all pre-tax contributions to an HSA
are included in wages subject to income tax
As of 1 November 2013, the states fall into three categories
►
►
►
Page 41
All inclusive
Follow federal
Restricted
Employment tax year in review

42. State payroll tax analysis
Civil union
Domestic
partnerships
Marriage
All
inclusive
Page 42
Employment tax year in review

43. State payroll tax analysis
Civil union
Domestic
partnerships
Marriage
Follow
federal
Page 43
Employment tax year in review

44. State payroll tax analysis
Civil union
Domestic
partnerships
Marriage
Restricted
Page 44
Employment tax year in review

45. Case in point – Colorado
Civil unions recognized in 2013
►
►
►
►
Civil unions are recognized for
tax year 2013
Civil union partners may not file
state income tax returns as
married, unless they are married
for federal income tax purposes
Same-sex marriages from other
states qualify as married for state
income tax purposes
Same-sex partner benefits follows
federal tax treatment (taxable to
civil union partners)
Determining the tax
treatment of same-sex
partner benefits will be
complex and variable in
civil union and domestic
partnership states
– Telephone conversation, Colorado Department
of Revenue, 13 September 2013
Page 45
Employment tax year in review

46. More federal guidance is needed
Page 46
Employment tax year in review

47. Same-sex partner rules should be coordinated
across all affected business functions
Evaluate, communicate
and manage
Counsel
Vendors
Benefits
Teamwork
Human
resources
IT
Payroll
and tax
Page 47
Identify business process owners
and stakeholders
► Evaluate US benefits and
company policies
► Determine benefit eligibility and
policy changes
► Coordinate with third-party service
providers
► Implement human resources
information system (HRIS) and
other system changes
► Communicate with and educate
employees
► Manage taxing requirements
retroactively and prospectively
►
Employment tax year in review

48. Recommended steps
vernments need revenue. They
are raising the tax burden and
policing the tax base in a far
tougher manner.Companies are
responding to the shifting global
landscape and dramatically
changing their business
models.This convergence is
driving a significant increase in tax
controversy which can lead to
financial, resource and
reputational need to be “audit
ready” in this new era of global risk
and uncertainty.
A number of key steps can help
you reduce the threats posed to
your business.
1
6
Identify affected
employee
population
2
Communicate
with and
educate
employees
Review benefit
and company
policies
Are you ready?
5
3
Make retroactive
corrections to
wages
and taxes
Modify benefit
plans and policies
as determined
4
Adjust 2013 wages
and taxes
Page 48
Employment tax year in review

49. Same-sex partners
Communicate
Evaluate
Business
owners
Considerations in developing a work plan
Human resources
Family and medical leave, employee
assistance programs (financial/tax
planning, tax return preparation)
Change in policies, availability of
financial/tax planning or tax preparation
assistance
Payroll
Health/medical, retirement, annuity,
life/AD&D, QDROs, non-qualified
deferred compensation
Prior-year taxable wage data, current
federal/state tax setup, Form W-4
and equivalent filings
Benefit eligibility, spousal consent
and beneficiary designation
requirements, enrollment procedures
and effective dates
Prior-year adjustments (FICA refunds,
Forms W-2c), federal and state tax
effect of same-sex spousal benefits
Manage
►
Retirement and other benefit
payments to employee’s spouse?
►
How will data for prior-year taxable
wage overstatements be gathered?
►
►
Publish revised company policies
Benefits
Plan enrollment changes to be
communicated to payroll for tax and
reporting purposes?
►
►
Policy evaluation
►
Plan evaluation
►
EY can assist you
►
Employee communications
►
Plan document revisions
►
Employee assistance programs
(retirement planning, estate
planning, education funding,
including FAFSA filing and 529 plan
contributions)
►
Employee communications
►
Inbound/outbound expatriate policy
evaluation for effect on international
workforce
►
Inbound/outbound expatriate
program evaluation for effect
on international workforce
Systems/IT
Benefits enrollment, HRIS, employee
self-service portal, system interfaces,
payroll tax configuration
Collaborate with HR, benefits and
payroll on employee communications
Service providers
Benefits enrollment administrator,
retirement/HSA plan trustees, insurance
providers, employment tax filing
Collaborate with HR, benefits and payroll
on employee communications
►
►
What is the process for prior-year
FICA refunds?
Are there any new system
requirements in implementing policy
and plan amendments?
Are service providers aware of
plan and policy changes and
requirements?
►
What is the implementation schedule
for payroll tax configuration changes?
►
How will you monitor changes in
state and international tax laws?
►
What software updates are expected,
and when will those be implemented?
What interfaces, reports, etc. need to be
tested? What is the time line for
implementation?
►
Can the employment tax filing provider
meet prior-year adjustment requirements?
►
Collaborate with service providers to
determine ability to meet requirements
and objectives
►
Fill gaps left by service providers (e.g.,
Forms W-2c, FICA refunds)
►
Tax configuration review
and design
►
Assist in design of system
requirements
►
Address federal, state and local tax
and reporting requirements
►
Review system configuration
and output
►
International tax requirements
►
Coordinate interface functionality
►
Assistance with prior-year
FICA tax refunds and return
preparation
For the complete report and work plan tips, go to: http://response.ey.com/CSG3/?doma
Page 49
Employment tax year in review

50. Polling question
How prepared are you to incorporate the new
same-sex partner requirements in your business
processes?
A.
Federal and state payroll tax configurations are current
B.
Benefit plans are up to date
C.
Both “A” and “B” are complete
D.
Don’t know/does not apply (EY, faculty, alumni, other)
Page 50
Employment tax year in review

51. Health insurance and the Affordable Care Act
(ACA)
Page 51
Employment tax year in review

52. Employer responsibility coverage excise tax
in 2014 (delayed to 2015)
Employers are not required by the ACA to offer health care
coverage to employees
► However, large employers may be subject to an excise tax if at least
one full-time employee receives a premium tax credit for Marketplace
coverage and an employer:
Fails to offer coverage to
full-time employees and their
dependents (IRC §4980H(a))
Page 52
or
Offers coverage to full-time
employees that does not
meet the law’s affordability or
minimum value standards
(IRC §4980H(b))
Employment tax year in review

53. Calculation of coverage excise tax
Tax for unaffordable coverage
IRC §4980H(b)
Tax for no coverage
IRC §4980H(a)
►
If a large employer does not offer
coverage to its full-time employees
and their dependents, employers face
a tax of:
►
$2,000 × the total number of full-time
employees (FTEs) if at least one FTE is
receiving a premium assistance
tax credit
►
If a large employer offers coverage
to their FTEs and their dependents,
but the coverage is unaffordable to
certain employees or does not
provide minimum value, employers
face a tax of:
►
The lesser of $3,000 × the number of
FTEs receiving a premium assistance
tax credit or $2,000 × the total number
of FTEs
Employers that do not offer coverage may subtract the first 30 workers when calculating their liability
for taxes under IRC §4980H(a). Taxes under 4980H(b) are capped not to exceed an employer’s
potential tax under §4980H(a).
Page 53
Employment tax year in review

54. Critical elements to the coverage excise
tax determination
“Large employers” – those with 50 or more full-time equivalents must assess
whether they will be subject to a coverage excise tax by addressing:
Who is a full-time
employee?
(defined as 30 hours
per week per month)
►
Is the employee
reasonably expected
to work full-time
or part-time?
►
Is the employee a
“variable hour” or
“seasonal” employee?
Determination of full-time
status may be based on
a look-back
measurement period of
up to 12 months
Page 54
Is the employerprovided health care
plan affordable?
►
A plan is “affordable” if
the employee’s cost for
self-only coverage is less
than 9.5% of the
employee’s “household
income”
►
Does the employerprovided health care
plan meet the minimum
value requirement?
IRS guidance provides
employers with a safe
harbor to test
affordability based on
W-2 wages
►
Plan must have a 60%
actuarial value
Employment tax year in review
What portion of the
employee population is
eligible for the premium
tax credit (PTC)?
►
Employee with
household income
between 100% and
400% of federal
poverty level
►
Employee who is not
eligible for other
minimum essential
coverage (e.g.,
Medicaid, Medicare,
other employersponsored coverage)

55. Health Marketplace notification
Process overview
Employer
State
Marketplace
Yes
Workflow stream
Employee
applies for
PTC
Page 55
Health Marketplace
determines
eligibility
status
Exchange notifies
employer
who is
eligible for PTC
Employment tax year in review
Employer system
determines
validity
of notice
If so
determined,
begin
appeals process

56. Health Marketplace notifications
When might an employer receive Marketplace notices?
The Marketplace must notify the employer if it determines that an employee is eligible for an advanced payment of
the PTC or a cost-sharing subsidy. The notice may apply to employees in various circumstances:
► If employee is a full-time employee (average ≥ 30 hours per week per month) and the full-time employee’s household
income is between 100% to 400% of the Federal Poverty Level (FPL) , then he or she would be eligible for a PTC if the
employer:
► Fails to offer coverage – triggers §4980H(a) (5% allowance by member firm)
► Offers coverage but coverage not considered affordable; minimum equivalent coverage, minimum equivalent value tests –
triggers §4980H(b)
► Employee is not a full-time employee and his or her income is between 100% to 400% of the FPL:
► This does not trigger any excise tax penalty
► Individual is incorrectly determined eligible for coverage by the Exchange:
► This could trigger an excise tax penalty that employer could appeal
Employer excise tax penalties?
IRC §4980H(a)
►
IRC §4980H(b)
$2,000 × the total number of full-time employees if at
least one full-time employee is receiving a PTC
►
The lesser of $3,000 × the number of full-time employees
receiving a PTC or $2,000 × the total number of full-time
employees
Health Marketplace open enrollment began 1 October 2013
Page 56
Employment tax year in review

57. Unemployment insurance
Page 57
Employment tax year in review

58. 2013 state unemployment insurance
highlights
FUTA credit
reductions
SUI tax
Cost of debt
Page 58
►
As of 12 November 2013, EY projects that 14 states and territories are at
risk of FUTA credit reductions for 2013, slightly less than in 2012
►
For 2013, 23 states raised the SUI wage base, 11 increased SUI base tax
rates, and 17 lowered them
►
For 2013, 18 states are expected to pass interest costs to employers for
loans/bonds
Employment tax year in review

59. Unemployment insurance basics
FUTA credit
reduction
FUTA
Employers pay 6% on
employee wages up to
$7,000 in the year
A maximum FUTA credit of
5.4% applies, for a net FUTA
rate of 0.6%
Page 59
Applies to all employers in
those states not compliant
with federal law or that have
outstanding federal loan
balances (under Title XII) for
two consecutive years;
additional FUTA payments are
used to pay down state
federal loan balance
Applies to individual
employers that don’t timely
and fully pay their SUI
Employment tax year in review

60. Unemployment insurance basics
2.7% add on
Further reduction in FUTA
credit if state has outstanding
loan for three consecutive
years and employer SUI
rates don’t meet minimum
federal level
Benefit cost
reduction
(BCR)
Applies in Virgin Islands in
2012 and 2013
Page 60
Employment tax year in review
Further reduction in FUTA
credit if state has outstanding
loan balance for five
consecutive years
Triggers in Indiana and
South Carolina in 2013
(most states trigger in 2014)

61. Federal UI loan balance life cycle
►
►
FUTA credit reduction of
0.3% applies if loan
balance from 10 Nov 2008
Interest was due
30 September (was waived
under federal law)
►
FUTA credit reduction of 0.9% applies
if loan balance from 10 Nov 2008
►
Interest was due 30 September
►
Additional FUTA credit reduction is
triggered under the 2.7% add-on
State receives federal loan
to pay unemployment
insurance benefits
2008
2009
2010
2011
2012
►
FUTA credit reduction of
1.5% applies if loan
balance from 10 Nov 08
►
Interest is due
30 September
►
Additional FUTA credit
reduction is triggered
under the 2.7% add-on
►
►
Additional FUTA credit
reduction is triggered
under the BCR add-on
2013
Interest was due
30 September (was waived
under federal law)
►
►
Page 61
FUTA credit reduction
of 0.6% applies if loan
balance from
10 Nov 2008
►
FUTA credit reduction of 1.2%
applies if loan balance from
10 Nov 2008
►
Interest was due 30 September
Interest was due
30 September
►
Additional FUTA credit reduction
is triggered under the 2.7%
add-on
►
►
Additional FUTA credit
reduction is triggered under the
BCR add-on
Employment tax year in review
2014

62. Federal unemployment insurance for 2013
States projected to have a FUTA credit reduction in 2013
Based on Ernst & Young LLP survey data, 12 November 2013
State
Credit reduction rate
Net FUTA rate and per
employee maximum tax
Arizona
(loan balance repaid)
0.6%
1.2%/$84
Arkansas
0.9%
1.5%/$105
California
0.9%
1.5%/$105
Connecticut
0.9%
1.5%/$105
Delaware
(law passed in 2013 to pay off
loan with other state funds)
0.6%
1.2%/$84
Florida
(loan balance repaid)
0.9%
0.6%/$42
Georgia
(applied for but did not get a
freeze at 2012 rate)
0.9%
1.5%/$105
Page 62
Employment tax year in review

63. FUTA credit reduction states for 2013
States projected to have a FUTA credit reductions in 2013
Based on Ernst & Young LLP survey data, 12 November 2013
State
Credit reduction rate
Net FUTA rate and per
employee maximum tax
Indiana
(BCR triggers in 2013)
1.2%
1.8%/$126
Kentucky
0.9%
1.5%/$105
Missouri
0.9%
1.5%/$105
Nevada
(loan balance repaid)
0.9%
0.6%/$42
New Jersey
(loan balance repaid)
0.9%
0.6%/$42
New York
0.9%
1.5%/$105
North Carolina
0.9%
1.5%/$105
Ohio
0.9%
1.5%/$105
Page 63
Employment tax year in review

64. FUTA credit reduction states for 2013
States projected to have a FUTA credit reductions in 2013
Based on Ernst & Young LLP survey data, 12 November 2013
State
Credit reduction rate
Net FUTA rate and per
employee maximum tax
Rhode Island
0.9%
1.5%/$105
South Carolina
(BCR triggers in 2013)
1.2%
0.6%/$42
(waiver approved)
Vermont
(loan balance repaid)
0.6%
0.6%/$42
Virgin Islands
(2.7% add-on applies in 2013)
1.2% (net 2.1% with add-on)
1.5%/$147
(+ 2.7% add-on)
Wisconsin
0.9%
1.5%/$105
Page 64
Employment tax year in review

65. Interest on federal loans
Another component of rising employer cost
►
►
►
►
►
►
The issue of interest debt on federal loans was delayed for two years
when, under the American Recovery and Reinvestment Act of 2009,
interest was waived for 2009 and 2010
It is likely the waiver of interest partially accounts for the heavy
borrowing in 2009 and 2010, as interest-free Title XII loans would
have been the most cost-effective way to obtain credit for failing
UI trust funds
Despite interest group pressure to extend the interest waiver for
2011 and beyond, Congress has not acted to extend the measure
States that have not discharged their debt face the issue of paying
interest assessments
Interest payments cannot be paid from state unemployment trust funds
Numerous states funded the 2011 and 2012 interest payment through
general revenues, leaving the matter of future funding to 2013
Page 65
Employment tax year in review

66. States that pass interest expense to
employers
State
Type of debt assessment
Arkansas
Title XII
Colorado
Bonds
Connecticut
Title XII
Delaware (potential risk for 2014)
Title XII
Illinois
Bonds
Indiana (multiplier included in base rate)
Title XII
Kansas (paid by negative balance employers)
Loan from state fund
Kentucky (surcharge applies in 2014)
Title XII
Michigan
Bonds
Missouri
Title XII
Nevada (to apply in 2014)
Bonds
Page 66
Employment tax year in review

67. States that pass interest expense to
employers
State
Type of debt assessment
New Jersey
Title XII
New York
Title XII
Pennsylvania
Title XII/Bonds
Rhode Island (sunsets in 2015 if loan paid in full)
Title XII
South Carolina
Title XII
Virgin Islands (effective 2013)
Title XII
Wisconsin (bill proposes for state to partially fund in 2013)
Title XII
Page 67
Employment tax year in review

68. Case in point
UI rates are sometimes incorrectly calculated
The Minnesota Court of Appeals ruled that
the Minnesota Department of Employment
and Economic Development incorrectly
set the state unemployment insurance
(SUI) rate for a newly-formed employing
unit at 8.3% rather than the new employer
rate of 3.4%. At issue in the case was
whether the department was correct in
asserting that partial experience of the
predecessor employer was required to be
transferred to the successor employer
because the entities were under
substantially common management or
control. (Continental Hydraulics
Incorporation v. Department of
Employment and Economic Development,
No. A12–1654, 10 June 2013)
Page 68
Employment tax year in review

69. Transfer of UI experience in partial acquisition
(March 2013 – prior to acquisition)
Snack Inc.
Baker Inc.
Cookies
Chips
(B. Sweet)
Bread Co.
Cakes
Cookie Co.
(J. Dough)
Pie Co.
In preparation for the sale on 1 April, Snack Inc. transfers B. Sweet to the cookie division and Baker
Inc. creates Cookie Co. and transfers its employee, J. Dough, from Pie Co. to head the new company.
Prior to the sale, there is common management between Snack Inc. and Cookie Co.
Page 69
Employment tax year in review

70. Transfer or UI experience in partial acquisition
(1 April 2013 – day of acquisition)
Snack Inc.
Baker Inc.
Cookie Co.
Bread Co.
Chips
Cakes
(J. Dough and
B. Sweet)
Pie Co.
On the day of the acquisition, there is no longer common management between Snack Inc. and
Cookie Co. and, under Minnesota law, transfer of UI experience does not apply.
Page 70
Employment tax year in review

71. UI integrity – Responding to UI claim notices
►
Under the federal Trade Adjustment Assistance Extension Act of 2011,
an employer’s account is required to be charged for unemployment
insurance overpayments that are caused by:
►
►
►
An employer’s (or an agent of the employer’s) pattern of failure to respond
timely or adequately to a state’s request for information
All states were required the adopt the provision by 22 October 2013
States may adopt a stricter standard than “pattern of failure”:
►
►
Page 71
Under Iowa’s UI integrity provision, the charging provision applies the first
time a UI benefit overpayment occurs and the employer did not adequately
and timely respond to the state’s request for information
Under New York’s UI integrity provision, an employer can be forgiven for
the first such failure if good cause can be shown
Employment tax year in review

72. States that have enacted the UI Integrity Act
of 2011 (as of 31 October 2013)
WA
MT
ME
ND
OR
VT
MN
NH
ID
WI
SD
MA
NY
MI
WY
RI
NV
PA
IA
NE
IL
UT
CA
NJ
OH
IN
DE
WV
CO
VA
KS
MO
CT
DC
MD
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AK
TX
AL
GA
Legislation
enacted
LA
HI
FL
Legislation
pending
Bill not yet
introduced
22 October deadline for
compliance will be missed
Page 72
Employment tax year in review
Applies after
1 to 2 offenses

73. Claims management isn’t just good business,
it’s the law
►
►
►
An employer’s individual UI rate is primarily influenced by the amount
of benefits charged to its account
Claims are the most significant variable over which employers have a
measure of control
The primary goal of claims management is the identification and
elimination of fraudulent or erroneous benefit charges:
►
►
Supporting the claims management program are processes that bring
efficiencies to the hiring and firing practices of the business
There are four key processes in an efficient claims management
program
Page 73
Employment tax year in review

74. Claims management
Four key processes
Educate
and train
Benchmark
Benefit
statement
audit
Claim
review
Page 74
Employment tax year in review

75. Polling question
What steps have you taken to make sure you
respond timely and fully to UI notices under the
new laws?
A.
We are just now reviewing this issue
B.
We have discussed gaps and how they will be
addressed with our claims management team
C.
We need more information
D.
Don’t know/does not apply (EY, faculty, alumni, other)
Page 75
Employment tax year in review

76. State income tax withholding goes retro
Page 76
Employment tax year in review

77. Record year for retroactivity in state
income tax laws
►
As of 3 July 2013, seven states have enacted income tax withholding
changes that are retroactive to 1 January 2013
►
►
In contrast, just three states thus far have enacted tax rate cuts for 2014
and future years
Retro changes include both income tax rate changes and changes in
the income tax treatment of employee fringe benefits
Page 77
Employment tax year in review

78. State income tax changes in 2013
►
Income tax changes effective
1 January 2013
►
Income tax rate changes in
2014 and future years
►
Idaho
Indiana 1
Kansas 2
Minnesota
North Dakota
Ohio
Wisconsin
►
Indiana (2015)
Kansas (2014)
Missouri (vetoed and sustained)
North Carolina
Oklahoma (2015)
►
►
►
►
►
►
1
►
►
►
►
Fringe benefits coupling
2 Standard
Page 78
deduction
Employment tax year in review

79. Minnesota and Indiana take fringe benefits in
opposite direction
Minnesota
Indiana
1 January 2013
►
►
Page 79
Transit benefits in
excess of $125 per
month are taxable
Adoption
assistance and
educational
assistance of
up to $5,250
is included in
taxable wages
1 January 2012
►
Transit benefits in excess
of $100 per month (and up
to federal limit) is no
longer taxable
►
Educational
assistance of up to
$5,250 is no longer
taxable
Employment tax year in review

80. Three-step strategy for coping with income
tax withholding changes
1 Monitor state
2 Track developments
developments through
the year
against payroll
system updates
►
It is best to have more than
one source for news (don’t
just rely on your software
or employment tax
service provider)
Page 80
►
Tracking should include
effective date of state/local
change, date update provided
for payroll system and date
the update was installed
(payroll period ending date)
communication
template for state/local
tax changes
State or locality name
►
Nature of the change
►
Effective date of the change
►
Payroll check date that
change will first appear
►
Employment tax year in review
►
Link to the state/local
Form W-4 where applicable
►
►
Subscribe to an employment
tax news service
3 Create employee
Get corporate counsel
approval of template where
required by company policy

81. The pay card controversy
Page 81
Employment tax year in review

82. It started with The New York Times, NBC and
CBS
►
NBC stated:
►
►
►
►
►
Employees are forced to accept pay cards
Fees eat up $30 per month of workers’ wages
Employees don’t receive pay statements, thereby allowing employers to
hide wage theft
Employer kickbacks amount to a return of the “old-time company store”
And then:
►
►
New York Attorney General started investigating employer pay card policies
Consumer Financial Protection Bureau issued a bulletin (12 September
2013) warning employers against using only payroll cards to pay workers
►
Page 82
The agency said that by law workers must be able to choose how they
receive their wages, and if they choose to be paid with payroll cards, they
are entitled to protections such as disclosure of fees and free withdrawal of
their pay each pay day
Employment tax year in review

83. 7 leading employer pay card practices
1. Comply with the law
2. Offer options
3. Don’t be pushy
4. Carefully choose the card
issuer
5. Provide information to
employees
6. Be mindful of card terms and
conditions
7. Make it easy for employees to
change their payment method
Read more about pay cards and on our blog, Payroll Perspectives from EY.
Page 83
Employment tax year in review

84. Polling question
Do you require RCH credits (recognized by the
American Payroll Association)?
A.
Yes
B.
No
In a few weeks, your certificate will be sent to the email
address you provided when you registered for this webcast.
Page 84
Employment tax year in review

85. Do you have a handle on year-end 2013?
Page 85
Employment tax year in review

86. Questions
Page 86
Employment tax year in review

87. One-minute recap
Page 87
Employment tax year in review

88. Ernst & Young LLP employment tax contacts
Mary Angelbeck
mary.angelbeck@ey.com
+1 215 448 5307
David Germain
david.germain@ey.com
+1 516 336 0123
Chris Peters
christina.peters@ey.com
+1 614 232 7112
Peter Berard
peter.berard@ey.com
+1 212 773 4084
Julie Gilroy
julie.gilroy@ey.com
+1 312 879 3413
Stephanie Pfister
stephanie.pfister@ey.com
+1 415 894 8519
Gregory Carver
gregory.carver@ey.com
+1 214 969 8377
Mary Gorman
mary.gorman@ey.com
+1 202 327 7644
Debby Salam
debera.salam@ey.com
+1 713 750 1591
Bryan J. De la Bruyere
bryan.delabruyere@ey.com
+1 404 817 4384
Ken Hausser
kenneth.hausser@ey.com
+1 732 516 4558
Debbie Spyker
deborah.spyker@ey.com
+1 720 931 4321
Jennie DeVincenzo
jennie.devincenzo@ey.com
+1 646 734 3517
Thomas Meyerer
thomas.meyerer@ey.com
+1 202 327 8380
Richard Ferrari
richard.ferrari@ey.com
+1 212 773 5714
Matthew Ort
matthew.ort@ey.com
+1 214 969 8209
Page 88
Employment tax year in review

89. EY puts inform
into
information
Connect with us
Follow us on Twitter @EYEmploymentTax
Visit us on LinkedIn @Payroll Perspectives from EY
Read our blog @payrollperspectivesblog.ey.com
Page 89
Employment tax year in review