Medlin Software, Dennis

Was not following, but the first article talked about the ruling being based on preferential treatment.  Seems to be an extension of the Oregon ruling where the amount is included for UI purposes, to avoid discrimination.  If the WI case holds, coupled with the OR ruling, it seems like HA (not actual parsonage) will go away. Had not thought about it in the way the two cases did, but I cannot argue their arguments either.

In locales where property does not lose value, the bene is a "triple-dip" win for the clergy person who has their own property.  Tax free money, deductible interest on the loan they pay for with tax free income, and appreciation on (or at least use of) the property gained with tax free money.

There are certain times I insist on recording phone calls as well... if not acceptable to the other party, then the phone call ends.

"After checking your records, there is no retainer balance on file. Your retainer fee is ### per hour.  Once there is sufficient balance, I will schedule a consultation."

1 hour ago, jasdlm said:

I'm treasurer of my Church (just started my term this year).

#1 priority for any volunteer or quasi volunteer "job" is to make it easy to be replaced... unless you want to be a lifer.  BTDT, and unless I can see myself completing priority 1, I will no longer accept that type of gig.  Only took me three decades to figure it out (I took my first volunteer gig, to revive a dormant not for profit club, at age 21, and am enjoying my first "free" spring in two decades after letting another gig go).

Could do nothing, and if grand kids come about, transfer the remainder to them...

Elrod's example is another (type is up to you, good, bad, etc.) "reason" for a 529.  The account holder may end up on assistance of some sort, and the 529 can hold funds which do not alter the assistance.  For those who are on assistance of some sort, it is a good way for others to provide some funds without altering their eligibility.  Interest on earnings is not the worry in those cases.

1 minute ago, Abby Normal said:

Shareholder insurance is taxable wages but you subtract it right back out as SEHI, so it doesn't make sense to withhold taxes on it and give the government an interest free loan.

We add to last paycheck in December and don't increase fed or state withholding. My withholdings are my business and I have enough withheld to avoid underpayment penalties.

Taxes and "makes sense".  Funny

You must separate the shareholder/employee from the S Corp/employer.  It is not the obligation of the employer to know or handle any part of the emplyoee's tax return.  The employee controls their withholding via the W4.  The employer honors that (or faces penalties).  No verbal adjustments, or other adjustments because enough is already withheld is allowed.

This is the "rub".  All the current advice I can find is from the tax return perspective.  There is little or maybe even no "hard" advice from the employer/payroll perspective.  The Indiana case makes the tax return perspective untenable for the employer to rely on.  Plus, there may be other taxes/deductions which do not offer a credit.deduction later, such as a local tax, garnishment (the insurance is part of disposable wages), alimony/CS calculations, etc.

I 100% get most here are not on the payroll processing/employer perspective, but you could end up with a return from an S Corp client, and who could be subject to penalties from not withholding properly (even if for themselves, again, have to separate the two "entities" the one person may have).

I can see this as another add on to the "reasonable wage", "meeting pay frequency no matter the income flow", and other similar issues those who are the owner and employee have to deal with.  It is tough to always treat the employee self as if that part of the person was a stranger to the owner self.

After research and feedback...

www.in.gov/legislative/iac/20180131-IR-045180035NRA.xml.pdf
"... the Department found that Taxpayer paid "health insurance premiums" on behalf of four (4) shareholder-employees..."
"The audit further found the Taxpayer did not withhold Indiana and county income taxes on those payments. As a result, the Department assessed additional withholding taxes, interest, and penalty."

As covered in Pub 15, the amount is clearly taxable wages for FWH.  Likely for many/most SWH.  If the shareholder wants to be covered, as a deductible expense, for WC, the WC is also taxable income. per Pub 535.  Timing?  Every paycheck seems to be reasonable, since no other wages (the employee "is" being covered all year) can be reported at end of year if given earlier.

Simply put, for the employer, whether or not the employee later receives a credit has NO BEARING, and the shareholder insurance must be used for withholding calculations.  The side effect is, unless exempted, must also be included as taxable wages for other things, such as garnishments, local taxes, retirement percentage calculations, etc.

This actually makes sense if you forget (and again, impossible for those who have a tough time not thinking only as the employer) about the employee side of the issue, and pay attention only to the fact the shareholder insurance it taxable wages (with some narrow exceptions).

(And I must hedge my "bets" just in case there is some yet unknown to me exception which will come to light.)

12 hours ago, WITAXLADY said:

When we put the W-2's into ATX payroll program - we are "correcting" it from Medlin - as you are correct - we cannot get your program to generate it as we need it to be.

And we generally add it at year's end... as they pay the health insurance on their own all year to the insurance agency as lump sum for all employees covered and then have to break it out for the 2% shareholder..

So being able to add it in as you mentioned it in your original post sounded very workable to our style. and possibly saved much retyping!

D

What are you having to change at present?

Paying all year, with the recent ruling as an example, would require adding to wages and withholding all year...

14 hours ago, JimTaxes said:

can you have it as an option... new method vs existing method and let users make the decision how to handle it

There is always some ability for the user to override the software.

My impressions, after a day of delving, is I doubt it is an IRS issue being pressed.  (Although, I found one reference saying any insurance is taxable, including WC, disability, etc.)  IRS would only gain the penalty, not additional tax income, since there is offset available.

States, meh, as they probably have offsets too.  If caught, might gain a little on some sort of FTF or failure to report properly penalty, no profit on uncollected tax, since the collected and offset would wash.

But, local agencies, like Indiana County Tax, have profit to be made, as they are likely not to offer offset!  This could be very profitable to proactively audit, and very easy to catch.  Like states who profit from not indexing their withholding, or by offsetting against the lessening amount of FWH, some local wonks have figured out there is money to be made sticking to the "remuneration" definition of wages, versus some variant of state or federal taxable wages.

One customer has already responded they want to keep as is, since their clients do not report the amount until EOY.  Many "names", at present, suggest reporting the same as most do now (just alter the EOY forms for taxable wages, withhold nothing on the insurance benefit).  The problem with "as is", is it is clear the amount should be used for at elast some withholding calculations, and even if one did that, at EOY, an EOY year catch/even up may not have enough income to cover the WH, and could cause income shifting or under deposit penalties based on timeliness (monthly, quarterly, every payroll, whatever).

Looks like I will be suggesting the easiest, annual divide by paydays, add to taxable on each check, with an even up test/review before the end of each quarter.  What I might personally do, I I were to handle one of these, is a once a month or quarter amount, provided there is enough income.  Interestingly, the same customer says they have many clients who do not even pay their employees (themselves) on a regular basis, despite regular year round effort at work, because of income flow.  Nice double up on audit, minimum wage/minimum pay frequency/tax shifting, and under pay on insurance benefit amount!

Enforcement is being stepped up.  What I mean is states (IN recently) are ruling and going after employers who are not withholding tax on the insurance premium.  (Most handle by adding the annual amount to the W2 as described by the IRS and many/most states.)  The enforcement change is not employee based, but is caught under audit of the employers. Even though, the WH ends up being a wash (via credits), the tax entities want the money up front (wise owner/employees already properly manage their tax deposits via W4 and/or personal payments).  I found one reference where an employer was in trouble for not withholding or reporting the insurance amount, even through neither the employee or employer took the deduction!  A penalty on zero...

At first, I thought I had "missed" something, in the way we were doing what our customers asked (to just allow alteration of the EOY forms).  As of today, I see many are still doing the same, asking for EOY figures only, not withholding on a per payroll basis.  Not that this means I was correct, but only I was not the only one wrong...  (Background, this all started with IRS notice 2008-1, the double dip prevention tool, where the amount was pushed to the W2 for compliance purposes.)

When pondering what to do, I see there are important collateral issues.  The insurance amount could be wages for garnishment calculations and WC calculations, among other things... (with some possible exceptions).
 

• Start new topi

On 1/16/2018 at 8:21 AM, Medlin Software said:

Just guessing the code is created using some of the data on the form (similar to how one can verify a CC number is not invalid).  This way, the SSA/IRS can decode it.  The code will be useless once the algorithm leaks, which it eventually will.  Unless there is some sort of method where the software vendor has to provide the code to the IRS, and the code can be created in many ways.

My guess looks pretty accurate...

While possible, I cannot envision the IRS coming up and releasing a "seed", once, or every tax year, and having a shared known seed is not secure.  Given the examples (thank you), I am confident in understanding the process.

But then again, I do not see a viable way (or intent) to make box d and/or box 9 required, so only those who blindly enter what is on a paper form, and those who import or scan the data will be using the verification system.

THANK YOU!

Not exactly what I speculated it would be, but it is not nonsensical either.  Only one sample, but it could be the first two sections are don't want to say in public with the last part being a sequence or employee number (tough to consider the first part a sequence, not enough digits, the middle, could be a sequence number, but the 17+ millionth employee is a bit of a stretch unless there is some sort of online interaction to apply a unique employee sequence for each form per software vendor).

I do not need to see any others, as I do not want to make it easier to crack the formula... since this is a public posting.

Added:  YIKES when I think of people having (well, not really, since it is optional) to type this long of a sequence exactly.  If it turns out to be needed to make the box 9 code system work, then double YIKES.

Thanks Pacun, but that looks like the format for the verification box.  That is a publicly known format (box 9).

What I am trying to guess at is for software which is participating in the verification code test, what are they putting in Box d (control number).

I found something which implies TT is accepting 5 digits, a space, then 5 more digits.  This actually makes some sense, as the verification code is created using items from the emplyoee's form, and having a unique (per FEIN) control number, in a known format, would give one more individual piece of data to crunch, along with the seed, to create a verification code for box 9.

I have one third party report of the HRB franchise software requiring something other than blank for a control number, but no verification of what format HRB is asking for.  TT also, according to a third party, gives an error saying at least two digits are needed, when the control number is not blank.

Had to revisit this after hearing from several of our customers about issues entering the control number into their tax software.

Somewhat rant on...

I found an article which states the Verification code is created with a seed (probably some sort of number), and uses data on the W2.  The seed, with likely certain (and hopefully rotating) data on the actual form, creates the verification code.

(Note, the verification code is still not required by the IRS, and unless they come up with a way for those preparing payroll with a pen to create their own, will never be required.)

It appears the control number field will be part of the calculation, and may become a 5 character, space (or maybe dash), 5 character field.  I am hearing from customers that some tax software (TT, and likely franchise HRB) software has entry issues with the control number.  Blank for control number seems to work (for TT, one says not for HRB franchise).  TT gives an error if the control number is not at least two digits, and states one acceptable format is the 5 space 5. 

If you have a W2 with a verification code, can you share what format the control number is?

Assuming (unlikely, but I will "play" along) the formula and seed can be kept secret, the verification code is still barely more than useless for actual security.

One way to look at the verification code is to compare to a charge card security code.  It is easy to see if the code is inaccurate, but it does not prove accuracy of the actual card number.  While not often said, the charge card security code is never "required" (wise merchants refuse to take a card without it).  Even worse, charge card companies are issuing cards with a security code which will ALWAYS work (all zeroes) since all zeroes was an "old", and still usable way, to tell the card system there is no security code on the card (back when not all cards had them), or the code is unreadable! (Personally, when we get a card with all zeroes entered as the security code, we require a visual of the card, unless we already know the customer.)  The verification code is the same,  will not be required, can and will be cracked, and at best, only proves the key data was unaltered and the person creating the form has the proper seed.

If the client wants to keep things as is with their "employer", maybe the client should get a business license, since they can no longer claim ignorance of the current relationship actually being employee/employer.  They could then get listed as an approved "provider" with their local service agencies, and maybe hire employees themselves... or find a better/more profitable customer.  (Typed as my spouse is going through our annual IHHS interview for our daughter, they are always seeking more providers, either for the IHHS type care - and there is also plenty of need for job coaches.)  The cash gig jobs tend to not last, and this could be a great opportunity to turn a bad situation into a profitable business.

If your client does not want to rock the boat, maybe suggest self purchased disability insurance, as it is easy to get hurt on that type of job.

Every year, I have one customer who calls to complain, loudly, that it is my fault they have to install updates several times a year.  This person pays someone to come in and install for them.  Like I have any control over when the IRS and states publish withholding changes, when the IRS publishes the new 941, 940, and W2 forms...

I learned a long time ago, not to try to explain, as it wastes my time and annoys the other party, so I wait until they are done, hang up, and still collect their fee.

Unless court order, I only give records to the client, so they can do what they wish with them.  Solves the mortgage writers fishing me for information to put some of the liability on me...

2 hours ago, Lion EA said:

I have a new client just like that, a young guy.  I'm so tired of typing explanations on my phone.  I have repeatedly asked him for an email address, so I can type on my keyboard.  He only texts.  He's married to the one earlier that sent her documents via Facebook Messenger pictures.  I love email and hate telephone and office visits, but texting is becoming too time consuming.

I use google voice as a text to email system.  I can reply to all emails (even the text to email) via desktop keyboard, phone keyboard, or more often than not (since it is MUCH faster) voice response using my phone...  Cuts my time creating replies by a large percentage.

Do check your spam every few days.  The free providers do not always play nice with each other, and one may block another for some period of time.  Sadly, the only way to avoid dealing with spam, is over time, use your own filtering software, which you control, on a mail server you control.  Gmail is likely the best automated system, but will still push messages you want to actually receive into spam.

The best is using one's own grey matter to control the impulse to click.  After that, I use the current Windows solutions, since they do not guess at the future (lie), and cause false positives.  I then, just for "fun" use various free offerings, manually, just to "see" what they report...

Whatever you decide to use (if anything) make sure it is checking for and installing updates at least once a day.  If you get a security alert, manually check the file using virustotal.com.  With common sense, you actually need to protection, since you are really protecting yourself from your own mistakes.

7 minutes ago, Randall said:

I assume the household employer is not withholding the employee FICA and is paying both halves themselves.  Why not just consider it a gift and forget about the grossing up.

 

Many will, but since the "gift" is a result of (and would not exist without the) employment, it is taxable income to the employee.  There is no grey area, this exact situation (employer paying the employee's share of SS and Medicare) is covered, black and white, in the IRS Pub 15a, Page 22 (2017).

Thus the employer will not be reporting wages properly, and the employer will not only be causing an issue for the employee, but with their WC company, FUTA, and SUTA.