To: Chief Fiscal Officers, MMARS Liaisons, and Payroll Directors
From: Martin J. Benison, Comptroller
Date: January 13, 2014
Re: Tax and Payroll Updates for 2014
Comptroller Memo FY#2014-17
HR/CMS must be updated to comply with a number of IRS and DOR requirements regarding employer responsibilities for tax year 2014. This memo highlights the requirements and the necessary department actions to be compliant, including recent changes in state and federal taxation.
HR/CMS Notable Schedule Changes
In 2014, there are 2 modified payroll schedules due to holidays:
• PPE 12/28/2013 - the Confirm Cycle occurred on Monday night 12/30/13, not Tuesday.
• PPE 6/28/14 - the Pay Day will be Thursday July 3, not Friday.
Wages/Deductions for Tax Year 2014
There will be 26 pay periods reported in Tax Year 2014 beginning with the pay period ending 12/28/2013.
Federal/Medicare and MA State Withholdings
There is a change from the 2013 MA state tax withholding rate. MA Rate is reduced from 5.25% to 5.2%. Federal Supplemental Rate – 25%, Medicare -1.45% and Additional Medicare rate- .9% remain the same. See Annual Change Matrix for details.
Standard Mileage Rates
The 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes has decreased by one-half cent from 2013.
Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car decreased from 56.5 to 56 cents per mile.
See IR 2013-95 for more information at http://www.irs.gov/2014-Standard-Mileage-Rates-for-Business,-Medical-and-Moving-Announced.
Same Sex Marriage
For Federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state whose laws authorize the marriage of two individuals of the same sex, even if the state in which they now live does not recognize same-sex marriage. For more information, see IRS Publication 15. http://www.irs.gov/pub/irs-pdf/p15.pdf.
The social security tax rate for 2014 is unchanged at 6.2%. (Not Applicable to Commonwealth Employees; however, this is often a question by employees hearing this information in the media.)
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)(17) amount including, but not limited to, the applicable limits for any calendar year under 26 U.S.C. 401(a)(17).
The 2014 Salary Limit has increased to $166,400 (64% of $260,000) for anyone that became a member on or after January 1st, 2011.
Savings Plans (Deferred Compensation)
The Limits for 457 and 403B plans remain unchanged. Normal - $17,500; 3 Year Catchup (457 only) - $17,500; Over 50 - $5,500.
- (3 year Catch-up) When an employee elects the 3 year catch-up, they will only appear on the monthly deferral report once. There will be no further reporting unless there is another change submitted through the Plan Provider. Therefore, any future years need to be created upon the initial notification.
- (Over 50) The Commonwealth will have an automatic update for employees who are 50 years old or turning 50 within the calendar year, this update will automatically insert a row "Age 50-Extend Limit (B)" into the Savings Management page.
Health Care Spending/Dependent Care and COMECC
Departments can now begin entering HCSA/DCAP/HCSAF and COMECC deduction data for 2014 by using an Effective Date of 12/15/13. You must end date the deduction with a December 13, 2014 date. When entering the DCAP, HCSA and COMECC deductions in HR/CMS, be sure to enter the individual’s pay period amount and annual goal amount.
The 2014 HCSA/DCAP Limits and Fee remain the same as 2013. DCAP - $5,000; HCSA - $2,500 (minimum $500); the administrative fee (HCSAF) - $1.66 per pay period.
Departments should familiarize themselves with the HCSA/DCAP/IRS 2 ½ month grace period when considering 2014 goal amounts at http://www.mass.gov/anf/employee-insurance-and-retirement-benefits/oversight-agencies/gic/health-care-spending-account-grace-period-to-continue.html.
For more information about the HCSA/DCAP pre-tax programs, contact Benefit Strategies at (877) FLE-XGIC (353-9442) or http://www.benstrat.com/ or visit the GIC website. All other questions on this memo should be directed to the Comptroller’s Helpline at 617-973-2468
Every newly hired employee must complete Form I-9 and Form W-4. Both the employer and the employee are responsible for completing the Form I-9.
New 2014 Form W-4 at http://www.irs.gov/pub/irs-pdf/fw4.pdf.
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 Filing (Employees must file a Form W-4 Annually to Continue “Exempt” Status)
If an employee wishes to claim EXEMPT from withholding taxes, (s)he must indicate this by filing a new Form W-4 by February 17, 2014. If the employee fails to submit a new Form W-4, the employer must withhold based on the last ‘nonexempt’ W-4 statement on file, if none exists then withhold as “Single” with “0” (zero) allowances. See IRS Publication 15 for more details.
- Departments must notify exempt employees to resubmit a new W-4 Form.
- In addition, exempt employees with a valid (my system profile) email address will receive a system generated reminder to resubmit online using ePay.
- All employees can update their W-4 online using E-pay.
- Report HTAX103 identifies exempt employees who must file a new W-4. See the new Job Aid for HTAX103 on the Knowledge Center http://www.hrcms.state.ma.us/
- Departments should review report HMTAX015- Employee Withholding Allowance Certificate and keep updated W-4 copies in the employee’s personnel folder.
- Departments do not need to send W-4 forms claiming “Exempt” status to the IRS.
- If a paper 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.
- More information on Form W-4: http://www.irs.gov/
IRS Lock-in Letter
The IRS uses information reported on Form W-2 to identify employees with withholding compliance problems. In some cases, if a serious under-withholding problem is found, the IRS may issue a lock-in letter to the employer specifying the maximum number of withholding allowances and marital status permitted. Departments must furnish the employee copy to the employee within 10 business days of receipt and begin withholding based on date specified in the notice.
New W-4 submissions are only accepted if the new Form W-4 withholds more than the IRS Notice. See Publication 15 for more details at http://www.irs.gov/pub/irs-pdf/p15.pdf
Federal Tax Levy Exemption Tables
The IRS issues Publication 1494 regarding the “personal exemption” amounts to be used for calculating levies. Where applicable, HR/CMS will be updated with 2014 tables. 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.
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 2014 the Qualified Transportation Limits have changed. Parking - $250 and Transit $130; for both Federal and MA withholdings.
Benefit Strategies is the vendor administering the benefits. The HR/CMS deductions QTPARK and QTTRAN 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 and appear on the employee’s paycheck as TRANST for state taxes and TRANFD for federal taxes.
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.
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”.
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 MA exclusion amount for tax year 2014 is $250 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 $413 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 $413 per month exceeds the $250 federal and state exclusion thresholds by $163. Payroll directors must apply the imputed value of $163 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 2014. Please refer to IRS Publication 15B, “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 $250).
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 value is $220 which is less than the limit);
- 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 $250 (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
The HR/CMS earnings code for imputed parking benefits is PKF. 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 8, 2014 is the first pay period end date in February 2014.
See Employee Non-Cash Parking Benefit for a copy of the employee non-cash parking benefits HR/CMS Selection form.
If you have any questions, please contact the Comptroller’s Payroll Office or Tax Clearinghouse at (617) 727-5000.