To: Chief Fiscal Officers, MMARS Liaisons, and Payroll Directors
From: Martin J. Benison, Comptroller
Date: January 24, 2013
Re: Tax and Payroll Updates for 2013
Comptroller Memo FY#2013-17
HR/CMS must be updated to comply with a number of IRS and DOR requirements regarding employer responsibilities for tax year 2013. This memo highlights the requirements and the necessary department actions to be compliant, including recent changes in state and federal taxation.
Federal Tax Cut Extension – The 2013 federal marginal tax rates will remain unchanged for 2013 except for individuals with income above $400,000 and married couples with income above $450,000.
Massachusetts State Tax – The MA Tax Rate remains unchanged at 5.25%.
Medicare Tax – There will be .9% increase in Medicare tax for individuals with income over $200,000 and married couples with income over $250,000.
Social Security – The social security tax rate for 2013 increased to 6.2%. In addition, the social security wage base for 2013 increased to $113,700. (Not Applicable to Commonwealth Employees; however is often a question by employees hearing this information in the media.)
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 2013. The annual limits for 457 and 403B elective deferrals have been updated to $17,500. The annual limit for catch-up contributions is now $35,000.
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.
Retirement Plan Limits – The new limit for retirement plan contributions in 2013 has increased to $255,000.
More information can be found in IRS publication 525 Taxable and Nontaxable Income (2012 version available at this time).
State Retirement Cap - The definition of “regular wages” in M.G.L. c. 32 caps retirement deductions for new employees becoming members in the Retirement Systems to 64% of the 26 U.S.C. 401(a) amount including, but not limited to, the applicable limits for any calendar year under 26 U.S.C. 401(a)(17).
Therefore, anyone becoming a member on or after January 1st, 2011 cannot contribute to retirement on salary above $163,200 (64% of $255,000).
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 on/about 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 14th 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.
- Please use the newly issued IRS Form W-4 for 2013.
- When filing a new W-4, the effective date must be in 2013.
- Departments do not need to send W-4 forms claiming “Exempt” status to the IRS.
- 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 employees who must file a 2013 W-4 to maintain exempt status.
- If no W-4 is received by February 14, 2013, HR/CMS will automatically reset the employee tax record to Single with 0 exemptions.
Federal Tax Levy Exemption Tables – The IRS issues Publication 1494 regarding the “personal exemption” amounts to be used for calculating levies in 2013. HR/CMS was updated with the 2013 rates/amounts. 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.
Health Care Spending Account (HCSA) – According to IRS Section 125, the health care spending account allows employees to pay for qualified health care expenses via a pre-tax payroll deduction. The HCSA pre-tax limit for 2013 decreased to $2,500.
Dependent Care Assistance Program (DCAP) – According to 26 U.S.C. §129, the dependent care assistance program allows for a pre-tax deduction for eligible dependent care expenses. For 2013, the DCAP pre-tax limit for 2013 remains the same at $5,000.
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 2013, 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 limit for parking is $245 for federal tax and Massachusetts state tax. For 2013, the deduction limit for transit is $245 for federal tax and is $125 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. 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. 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.
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 2013 is at $245 per month.
Fair Market Value of Parking at State Facilities
This includes parking at the State House, McCormack, Hurley/Lindemann Garages and the Outside Guaranteed Reserved Spaces at the State House.
The Division of Capital Asset Management and Maintenance (DCP) has conducted the annual survey of Government Center parking rates. DCP has determined that the fair market value is $394 per month for qualified parking for these locations. Public parking garages in the immediate vicinity were identified and a comparable lot was selected based on the most reasonable rates.
The fair market value of $394 per month exceeds the $245 federal and state exclusion thresholds. Payroll directors must continue to apply the imputed value for both federal and state taxes for parking of $149 per month for all employees’ assigned parking in these facilities.
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:
- If the parking is available to the public, the monthly rate is the rate that the general public pays for the same parking, 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 at local parking facilities that are both comparable and in the same vicinity as the Department’s site. The Department sets 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 2013. Please refer to IRS Publication 15- B (2012 version available), “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 $245).
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:
- Employee parking assignments at the Boston Merrimac Street parking lot (fair market valueless than $245 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 so long as the total daily space value for parking access for that employee does not exceed the $245 (federal and state) threshold per month for days granted access. The employee must not be able to park on any other days.
- Restricted night time access between 5 p.m. and 7 a.m.
- 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.
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 the 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.
- February 9, 2013 is the first pay period end date in February
- February 23, 2013 is the second pay period end date in February
See Attachment A-Employee Non-Cash Parking Benefit for a copy of the employee non-cash parking benefits HR/CMS Selection form.
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.
Annual Changes Matrix