|To:||Chief Fiscal Officers, MMARS Liaisons, and Payroll Directors|
|From:||Martin J. Benison, Comptroller|
|Date:||January 15, 2009|
|Re:||Tax and Payroll Updates for 2009||Comptroller Memo|
Commonwealth payroll systems must be updated to comply with a number of IRS and DOR requirements regarding employer responsibilities for tax year 2009. This memo highlights the requirements and the necessary department actions to be compliant.
Deferred Compensation Limits - The IRS has announced the cost-of-living adjustments (COLAs) applicable to dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2009. The annual limits for 457 and 403B elective deferrals have increased from $15,500 to $16,500. The annual limit for catch-up contributions has increased from $31,000 to $33,000. The annual limit for catch-up contributions for individuals age 50 or over has increased from $5,000 to $5,500.
New Hires -The United States Customs and Immigration Services has created a new Employment Authorization Section on their website. The website gives instructions and a helpful Frequently Asked Questions about Employment Eligibility required in the I-9 Form process. See the website at http://www.uscis.gov/portal/site/uscis.
Social Security Verification - In October of 2008, relevant data for all active HR/CMS employees have been securely submitted to the Social Security Administration for verification. Document Direct Report MTAX014R lists the errors found between the SSA's records and the data in HR/CMS. To ensure future benefits, these discrepancies must be resolved. For further instructions see the HR/CMS Job Aid: Social Security Administration SSN Verification, in the Human Resource section at: http://www.hrcms.state.ma.us/.
W-4 - If an employee wishes to claim EXEMPT from withholding taxes, he/she must indicate such by filing a new Form W-4 by February 15 th of each year. If the employee fails to submit a new Form W-4, the employer must withhold as "Single" with "0" (zero) withholding allowances.
- Departments do not need to send Exempt W-4 forms to the IRS.
- Please use the newly issued IRS Form W-4 for 2008 at http://www.irs.gov/.
- When a W-4 is submitted with "Exempt" status, DO NOT use "Single" and "greater than 10 allowances" as the exempt set-up in HR/CMS. DO USE the "Maintain Gross" radial button with no "Additional Withholdings" on both Federal and State Tax Data panels.
- HR/CMS will produce a department report HTAX103 which will identify any employee who has either 1) the "Maintain Gross" radial button checked with no 'Additional Withholdings' or 2) claiming "99" Personal Exemptions.
- If no W-4 is received by February 15, departments are required to manually set the employee's Special Withholding to "None", Marital Status to "Single" with "0" Allowances.
W-5 - All Earned Income Credit Advance Payment Certificates expired at calendar year end. Eligible employees who want to receive advance payments of the earned income credit in 2009 must submit a new Form W-5 to their department payroll office. HR/CMS has automatically reset the EIC status. Departments must re-enter this information into HR/CMS. Form W-5 can be found at http://www.irs.gov/.
Federal Tax Levy Exemption Tables - The IRS issues Publication 1494 regarding the amount of "personal exemption" amounts to be used for calculating levies in 2009. When available, HR/CMS will be updated with the 2009 rates. Levies from prior years do not need to be updated unless the employee submits a new Form 668-W. Deductions will continue based on the original years' exemption tables and rates.
Qualified Transportation Parking Benefits - Pursuant to the Internal Revenue Code Section 132(f), IRS Publication 15-b, and Department of Revenue Technical Information Releases (TIR) 05-16 Section IV. A., employers who provide employees with free parking valued in excess of the federal and state exclusion amounts are required to add any excess value as part of the employees' gross income for tax reporting and withholding purposes. The federal and state exclusion amount for tax year 2009 is $230 per month (a $10 exclusion increase from the prior year).
Fair Market Value of Parking in the State House, McCormack, Hurley/Lindemann Garages and the Outside Guaranteed Reserved Spaces at the State House
The Bureau of State Office Buildings (BSB) has conducted the annual survey of Government Center parking rates. BSB has determined that the fair market value is $394 per month, effective January 1, 2009 for qualified parking in the State House, McCormack, Hurley/Lindemann Building parking garages and outside guaranteed reserved spaces at the State House. Public parking garages in the immediate vicinity were identified and a comparable lot was selected based on the most reasonable rates.
Since the fair market value exceeds the $230 federal and state exclusion thresholds, beginning February 2009, Payroll Directors must update the imputed value for both federal and state taxes for parking to $164 per month for all employees assigned parking in these facilities.
The parking benefit is processed one month in arrears. Therefore, the parking benefits for January 2009 will be reflected in the February 2009 payroll.
Parking Provided In Garages Other Than Those Listed Above
If your Department provides some employees with free employer-provided parking that is not listed above annually, you are required to annually determine the monthly fair market value of this non-cash parking benefit. IRS guidance requires that the fair market value be determined based on either:
- The monthly rate that the general public pays for the same parking (if the parking is open to the public), not the lower group or corporate rate that your Department actually pays for the spaces; or
- If the parking is not available to the public, the Department must survey the rates for local parking facilities in the same vicinity and set a monthly value based on the monthly rate for parking at a comparable lot, ( not any lower amount that your Department actually pays for the spaces).
Departments that provide free parking in facilities other than the McCormack, State House, Hurley/Lindemann Building and Merrimac Street lots should re-determine the fair market value of this parking fringe benefit for tax year 2009. Please refer to IRS Publication 15-B, "Employers Tax Guide To Fringe Benefits", for additional guidance on non-cash fringe benefits and use the exclusion amounts outlined in this memo (Federal/State $230).
Periodically, the Office of the Comptroller will review the status of employee records as they relate to benefit and tax requirements as well as the department evaluations of parking values assigned.
Tax Reporting Requirements Based upon "Access", Not Employee "Use" of Parking
With the limited exception of the few state employees who are assigned "non-personal use vehicles", there are no exemptions from the tax reporting and withholding requirements for employer-provided parking (even if the parking is required to perform their jobs). The value of a parking fringe benefit is determined by the parking "access" provided to an employee, not by the actual "use" of the parking space by an employee. The value of the parking benefit is the same whether an employee is assigned a reserved parking space or granted guaranteed access to unassigned spaces.
Type of Commonwealth-Provided Parking That Does Not Require Tax Reporting
The following types of Commonwealth-provided parking have been determined not to trigger the state and federal tax reporting requirements:
- Employee parking assignments at the Boston Merrimac Street parking lot (fair market value less than $230 at this time);
- Employees provided with passes for non-guaranteed or non-reserved on street or off street parking (e.g., "L Pass" spaces);
- Employees provided with limited access parking provided the total daily space value for parking access for that employee does not exceed the $230 (federal and state) thresholds per month for days granted access. The employee must not be able to park on any other days. Examples include restricted night time access between 5 p.m. and 7 a.m. and a parking space shared by multiple employees, each with restricted access with a monthly value which does not exceed federal or state thresholds;
- Visitor parking access.
Since Payroll Directors will be responsible for reporting qualified parking fringe benefits as part of payroll, Departments should continue to coordinate all parking assignments with their Payroll Directors. Parking assignments should be included as part of each employee's employment file.
Entering a Recurring Parking Non-Cash Benefit in HR/CMS
Since October 2007, HR/CMS uses a single code to calculate both federal and state gross tax amounts. Departments should follow the Processing Non-cash Parking Benefits Job Aid to enter a recurring parking non-cash benefit in HR/CMS (also found on the HRCMS Knowledge Center http://www.hrcms.state.ma.us/).
This benefit is processed one month in arrears. In HR/CMS, the January benefit is not processed until the February payroll.
- February 14, 2009 is the first pay period end date in February
- February 28, 2009 is the second pay period end date in February
Attachment A - "Employee Non-Cash Parking Benefit HR/CMS Selection Form" is available for new employees receiving the qualified parking fringe benefit, or for employees changing deduction frequency.
Qualified Transportation Transit Benefit- For tax year 2009, employees that have MBTA Transit Passes deducted from their pay are entitled to receive a monthly pre-tax deduction up to $120.00. These deductions in HR/CMS are set-up as pretax for both Federal and Massachusetts withholdings up to the limit. Where the monthly limit exceeds the pre-tax limit, the taxable portion of the deduction appears on paystubs as MBTTAX. Departments must ensure transit deductions are set-up correctly. Transit Pass Deductions are taken 1 month in advance; February's Pass is purchased in the first pay period of January.
Attachment B is a matrix of the items subject to change by the IRS and/or DOR with the change, if any, from 2008 to 2009 (i.e. rate, limit, or exclusion). If you have any questions, please contact the Payroll Office or Tax Clearinghouse at (617) 727-5000.
|Enc:||Attachment A - Employee Non-Cash Parking Benefit HR/CMS Selection Form|
Attachment B - Annual Changes Matrix
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