It’s the end of another year, and with it come changes in payroll tax reporting and withholding rates. The following information will be effective for all payroll paid after December 31, 2019. Additionally, we are providing some reminders to help get through the 2019 annual reporting process.
- Remember to add health insurance for S-Corp owners to your 2019 end of year payroll! If you are not sure how to do this, talk to your CPA as soon as possible! It can be costly to you, the business owner, if your payroll provider has to amend your W-2 to add this after the fact.
- Also remember to add other fringe benefits into your 2019 payroll and W-2 reporting. These include auto allowances, PS-58 costs of life insurance over $50,000, moving costs and other fringe benefits in excess of the regulatory exclusions.
- The exclusion from wages for employer provided vanpooling and transit passes will be $270 per month for 2020. Bicycle benefits continue to be paid as a taxed benefit.
- Military differential payments (made to former employees while they are on active duty in the uniformed services for more than 30 days) are treated as wages and reported on Form W-2.
- Those employers with tip reporting obligations (generally restaurants) should remember to file Federal Form 8027, Employers Annual Information Return of Tip Income and Allocated Tips, on or before March 2, 2020 for 2019 tip income. The due date is March 31, 2020 if you file electronically.
- If you are required to file 250 or more information returns, such as Form W-2 or Form 1099-Misc, you must file electronically. The 250-or-more requirement applies separately to each type of form. The IRS encourages electronic filing even though you may have fewer than 250 returns. These are due by January 31, 2020.
- You must complete Form W-2, Wage and Tax Statement for each employee and give copies B, C and 2 to your employee by January 31, 2020. You must send copy A of Form W-2 with Form W-3 to the Social Security Administration by January 31, 2020.
- Employers who have not filed a final Form 941 or Form 944, or are not a seasonal employer, must file payroll reports even if no payroll was paid during the reporting period. You must place a zero in “Subject Wages” and “Number of Hours” if the employer had no payroll during the reporting period. “No file” Oregon quarterly reports may also be filed by telephone at 503-378-3981.
- If you paid wages of $2,100 or more to at least one household employee during 2019, you need to report and pay social security and Medicare taxes on Sch H (when filing your personal return), and file Forms W-2 and W-3. You can choose whether to pay or withhold the employees’ portion. If you pay the employees’ portion, that amount must be included in his or her wages. If you paid wages of $1,000 or more in any one calendar quarter in 2019, you will be responsible to pay federal unemployment (FUTA), as well as state unemployment taxes. There are exceptions to these rules, so please contact us for details.
- Remember that all household related federal taxes are reported and paid with Form 1040, on Schedule H unless the taxpayer is already filing Form 941 as a sole proprietor or for-profit farm. For example, if you have a Schedule C with employees, you must report the household wages on that report.
- Oregon has annual reporting rules for household employees but uses a separate form called Form OA-Oregon Annual Tax Report. The Oregon forms must be filed by January 31, 2020. These returns are due independent of your personal income tax return. You may have a state requirement to remit quarterly payment of any tax requirements throughout the year.
2020 PAYROLL REMINDERS AND CHANGES:
- When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee or you may be directed to send certain Forms W-4 to the IRS. A copy of Form W-4 must still be sent to the Oregon Department of Revenue within 20 days after receiving it from the employee if your employee claims more than 10 withholding allowances, or claims an exemption from federal or state tax and their wages are expected to exceed $200 per week, or they claim to be exempt from state withholding tax but not federal withholding tax.
- Employers are required to report every new and rehired employees to the Division of Child Support within 20 days of their date of hire. For more information or to download forms go to: https://www.doj.state.or.us/child-support/for-employers/report-new-hires/
- If you file federal Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, you may also be allowed to file your Oregon withholding reports once a year using Form WA.
- If you discover an error on a previously filed Form 941 or Form 944, make the correction using Form 941X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, or Form 944X, Adjusted Employer’s Annual Federal Tax Return or Claim for Refund. These forms are filed when the error is discovered instead of waiting until the end of the quarter or end of the year. Claims for refund (or abatement) are also made on these forms.
- Single-owner disregarded entities (single-member LLC, sole proprietorship, or QSub), with employees are required to report and pay their employment taxes under the entity name using the entity level EIN.
- Employers who outsource any of their payroll functions to third-party service providers are still ultimately responsible to ensure that tax returns are filed and all taxes are paid or deposited correctly and on time.
- Oregon’s current hourly minimum wage is $11.25, $12.50 in the Portland Metro area, and $11.00 in nonurban counties. On July 1, 2020 the hourly minimum wage will increase to $12.00, $13.25 in the Portland Metro area, and $11.50 in nonurban counties.
Federal Payroll Rates –
- There may be a new 2020 Circular E, which should be used for Federal withholding on compensation paid to employees after December 31, 2019. The IRS will mail this publication to employers in January 2020.
- Federal unemployment tax rate for 2020 remains at 0.6% on the base compensation of $7,000 for a maximum tax per employee of $42. This assumes a 5.4% credit for payments to your state unemployment fund. If any part of the wages subject to FUTA are exempt from state unemployment tax, your FUTA rate may be higher.
- Social Security and Medicare rates for calendar year 2020 are as follows:
|Soc. Sec. Max |
|Employee||No limit||1.45%||No limit|
|Employer||No limit||1.45%||No limit|
|Self-employed||No limit||2.90%||No limit|
Employers are also required to begin withholding Additional Medicare tax of .9% when any employee’s wage reaches $200,000.00 during the year.
Oregon 2020 Payroll Rates and other important information –
- Oregon employers with 5 or more employees are now required to facilitate the OregonSaves program if they do not already have an employer-sponsored retirement plan. After May 15, 2020, this applies to ALL employers. More information can be found on the OregonSaves website.
- There should be updated withholding tables for Oregon (in January 2020). The updated tables should be used to reflect the changes to federal subtractions, which affect Oregon liabilities.
- Unemployment taxable wage base will be $42,100.00. The base tax rate for new employers will be 2.1%. Remember, tip income is subject to Oregon unemployment tax!
- Payments to a proprietor or to the proprietor’s child under age 18, spouse or parent, or payments to a general partner of a LLP or member of an LLC are not subject to Oregon unemployment taxes. Under certain circumstances, and subject to a timely written request, corporate officers in a closely held family corporation may exclude payments for services from Oregon unemployment taxes. Those excluded wages may be subject to higher FUTA taxes. You should check with your CPA to see what is best for your company.
- Tri-Met Transit District tax rate will remain at .7637%.
- Lane Transit District tax rate increases to .75%.
- The statewide transit tax remains at .1%.
- Worker’s compensation assessment rate is decreasing to 2.2 cents for each hour or partial hour worked by each employee. Half of this, or 1.1 cents per hour, may be withheld from the employee.
PAYROLL DEPOSIT RULES
- The IRS requires employers to deposit payroll taxes (Federal withholding, and social security and medicare) according to the following categories:
- Semi-weekly – This applies where the prior year deposits (based on the look back period of July 1, 2018 through June 30, 2019) $50,000 or more. For taxes withheld on Wednesday, Thursday or Friday, the deposit is due by the following Wednesday. Taxes withheld on any other day must be deposited on or before the following Friday.
- Monthly – This applies where the prior year deposits (based on the look back period of July 1, 2018 through June 30, 2019) were less than $50,000. The deposits are due by the 15th day of the following month.
- Deposit exceeds $100,000 on any day – The deposit is due by the next banking day. This requirement is important and can catch you when large bonuses are paid.
- $2,500 Rule – instead of making a deposit during the current quarter, an employer may send a payment with a timely filed Form 941 if the total Form 941 tax liability for either the current or preceding quarter is less than $2,500 and there is not a $100,000 next-day deposit obligation during the current quarter.
- Electronic deposit rules – You must make electronic deposits of all depository taxes using the Electronic Federal Tax Payments System (EFTPS) if your total deposits of such taxes were more than $200,000 or if you were required to use EFTPS in any prior year. If you are required to use EFTPS and fail to do so, you may be subject to a 10% penalty. To get more information or to enroll in EFTPS, call 1-800-555-4477 or go to www.eftps.gov. Deposits made by EFTPS must be initiated at least one business day before the deposit is due.
- If your Federal Unemployment (FUTA) tax is $500 or less in a quarter, carry it over to the next quarter. Continue carrying your tax liability over until the cumulative tax is more than $500. At that point, you must deposit your tax for the quarter. Deposit the tax by the last day of the first month that follows the end of the quarter. The 2020 annual Form 940 is due by January 31, 2021.
- Separate deposits are required for non-payroll income tax withholding on payments made during 2020. Do not combine deposits for Form 941 and Form 945 tax liabilities. Generally, the deposit rules for non-payroll liabilities are the same as Federal payroll rules. See the instructions for Form 945 for full details.
- You must pay your Oregon combined payroll taxes electronically if you are required to pay your federal tax liability electronically. A business must register with the Department of Revenue before initiating payments. Information and registration materials are available on the internet at www.oregon.gov/DOR or by calling the EFT help line at 503-947-2017.
- Oregon withholding tax due dates are the same as the dates for depositing federal tax liabilities. Payments for unemployment tax, WBF assessment and transit taxes are due quarterly.
PENSION WITHHOLDING RULES
- Distributions from qualified pension or annuity plans that are eligible to be rolled over tax free to an IRA or qualified plan are subject to a flat 20% withholding rate. Recipients cannot choose to have less federal income tax withheld for eligible rollover distributions. Withholding on retirement plan distributions can be avoided only by having the distribution transferred directly to the trustee of another plan or to an IRA, in a trustee to trustee transfer.
- Oregon withholding – Under current law, a plan beneficiary can continue to elect not to have state tax withheld. The election needs to be made with the plan administrator.
FORM 1099 INFORMATION RETURNS
Everyone engaged in a trade or business, including partnerships and non-profit organizations, must file information returns for the calendar year 2019 for certain payments made to others in the course of a trade or business. Examples include payments to individuals and partnerships for services, rent, interest, and debt forgiveness (by financial institutions). Also required are information returns to report the purchase of real estate, or the receipt of more than $10,000 of cash. (Gambling winnings are reported on Form W-2G). Note 100% of legal fees must be reported on Form 1099-Misc in the specified box for same.
- You should mail the forms so the recipients of the payments receive their copy of the Form 1099 no later than January 31, 2020. The IRS (and if applies, the state) copy is also due by January 31 2020. All information returns filed on paper must use a 3-line mailing address.
Payments made to a corporation are generally not required to be reported unless the payments are for any of the following:
- Medical and health care payments (1099-MISC)
- Withheld Federal income tax or foreign tax
- Barter exchange transactions (1099-B)
- Substitute payments in lieu of dividends and tax-exempt interest (1099-MISC)
- Acquisitions or abandonment of secured property (1099-A)
- Cancellation of debt (1099-C)
- Payment of attorneys’ fees and gross proceeds paid to attorneys (1099-MISC)
- Federal executive agency payments for services (1099-MISC)
- Fish purchases for cash (1099-MISC)
Penalties can be assessed at a rate of up to $50 per return if you fail to file timely, you fail to include all required information or you include incorrect information. You can obtain an extension to file these forms, if necessary. IF YOU NEED ASSISTANCE WITH FILING THESE FORMS, ISLER CAN HELP YOU! PLEASE CONTACT YOUR CPA IF YOU HAVE ANY QUESTIONS.
OTHER 2020 INFORMATION
As of December 5, 2019, the IRS has not released new mileage rates for 2020. Here are the 2019 standard mileage rates:
- Business – 58 cents
- Charitable – 14 cents
- Medical/moving – 20 cents
The simplified high-low method per diem reimbursement rates effective October 1, 2019 through September 30, 2020, are as follows:
- High-cost localities – $297 ($226 for lodging and $71 for meals and incidentals)
- All other localities – $200 ($140 for lodging and $60 for meals and incidentals)
Personal Property Tax Reports – The reporting (valuation) date for business personal property reports is January 1, 2020. A report listing all machinery, equipment and furniture owned, possessed or in your control on January 1, 2020 must be in the counties hand by March 16, 2020. There is no longer any extension of time to file this report! The tax will not be billed/due until November 15, 2020.
Real and Personal Property Tax Appeals – Valuation appeals are due by December 31 of the year you receive your tax statement.
Minors 14- and 15-years of age can work up to 3 hours per day between 7 a.m. and 7 p.m. when school is in session, and up to 8 hours per day when school is not in session, with a maximum of 18 hours per week. However, from June 1 through Labor Day, a maximum of 40 hours can be worked between the hours of 7 a.m. and 9 p.m.
Should you have any questions regarding any of our information, please contact our office.
The IRS has yet to release Circular E and other guidance. The information contained in this newsletter is subject to change as the IRS and Oregon DOR release additional guidance. If you have questions about the application of the information contained in this newsletter to your particular situation please contact us.
Circular 230 Notice: This newsletter is not an opinion. To the extent this newsletter concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Such assurances can be granted only by securing an opinion letter.