|To:||Chief Fiscal Officers, MMARS Liaisons, and Payroll Directors|
|From:||Martin J. Benison, Comptroller|
|Date:||January 25, 2011|
|Re:||Tax and Payroll Updates for 2011||Comptroller Memo|
HR/CMS must be updated to comply with a number of IRS and DOR requirements regarding employer responsibilities for tax year 2011. 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 and other items for tax year 2011. The annual limits for 457 and 403B elective deferrals remain unchanged at $16,500. The annual limit for catch-up contributions also remains unchanged at $33,000.
Note: The catch-up contribution one can make for a year cannot exceed the lesser of the catch-up contribution limit or the excess of compensation over the elective deferred compensation amounts that are not excess contributions.
More information can be found in IRS publication 525 Taxable and Nontaxable Income.
NEW HIRES - Every newly hired employee must complete the Form I-9. Both the employer and the employee are responsible for completing the Form I-9. The United States Customs and Immigration Services have an Employment Authorization Section on their website with instructions as well as Frequently Asked Questions about Employment Eligibility which are helpful.
See the following document for more information: USCIS Employment Authorization.
SOCIAL SECURITY VERIFICATION - Over the course of the year, data for new hires has been submitted to the Social Security Administration for verification. CTR staff contacted individual departments to resolve any discrepancies. These discrepancies must be resolved to ensure that new hires receive future benefits.
W-4 - If an employee wishes to claim EXEMPT from withholding taxes, (s)he must indicate this by filing a new Form W-4 by February 15 th of this year . If the employee fails to submit a new Form W-4, the employer must withhold as "Single" with "0" (zero) withholding allowances.
ADVANCED EARNED INCOME CREDIT- The earned income credit has been eliminated for calendar year 2011. The W-5 form is no longer necessary. HR/CMS has been updated to account for these changes and this earned income credit will not calculate on checks this year.
FEDERAL TAX LEVY EXEMPTION TABLES - The IRS issues Publication 1494 regarding the amount of "personal exemption" amounts to be used for calculating levies in 2011. HR/CMS was updated with the 2011 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 year's exemption tables and rates.
EMPLOYER PROVIDED QUALIFIED 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 to the employee's gross income for tax reporting and withholding purposes. The federal and state exclusion amount for tax year 2011 remains unchanged at $230 per month.
Other Parking Places
If your Department provides some employees with free employer-provided parking that is not listed above, you are required to determine the monthly fair market value of this non-cash parking benefit each year. IRS guidance requires that the fair market value be determined based on either:
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" 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.
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:
Entering a Recurring Parking Non-Cash Benefit in HR/CMS
HR/CMS uses a single code to calculate both federal and state gross tax amounts. Departments should follow the Job Aid regarding the parking non-cash benefit in HR/CMS Knowledge Center under the heading "General Deductions". This benefit is processed one month in arrears. In HR/CMS, the January benefit is not processed until the February payroll.
See Attachment A- Employee Non-Cash Parking Benefit for a copy of the employee non-cash parking benefits HR/CMS Selection form.
EMPLOYEE QUALIFIED TRANSPORTATION AND PARKING BENEFITS -
Qualified Transportation Benefit Plan (QTBP) allows employees the choice to direct a portion of their salary into reimbursement accounts to pay for certain work-related parking and/or mass transit expenses on a pre-tax, salary reduction basis.
For tax year 2011, the employees that have Benefit Strategies parking and transit costs deducted from their pay are entitled to receive a monthly pre-tax deduction. The deduction limits for parking are $230 for federal tax and Massachusetts state tax. The deduction limits for transit are $230 for federal tax and $120 for Massachusetts state tax. These deductions in HR/CMS are set-up as pre-tax 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 the employee's paycheck as TRANST for state taxes and TRANFD for federal taxes. If the expenses exceed the maximum, the remainder will be included in a post-tax account.
Departments must ensure transit deductions are set-up correctly in HR/CMS. Transit Pass Deductions are taken during the first pay period end date one month in advance. In HR/CMS the parking benefit is taken during the second pay period end date one month in advance.
The deduction code for the qualified parking benefits is QTPARK. The deduction code for the qualified transit benefits is QTTRAN. There are job aids for managing these deductions in HR/CMS. These job aids are available at HR/CMS Payroll Job Aids under the section "Qualified Transportation Benefits".
If you have any questions, please contact the Payroll Office or Tax Clearinghouse at (617) 727-5000.