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In the Payroll Mailbag …

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in Office Management,Payroll Management

Gift cards from HR: They’re no gift to Payroll

Question: HR is working on an employee recognition program and has asked us to consider a couple of options: tangible goods such as a radio, gift cards of small value (nothing above $10) or tokens that employees can earn and then trade in for a gift card. HR is insisting that nothing would be taxable, because the value is, overall, de minimis. This isn’t sitting too well with Payroll. Who’s right?

Answer: You are. No matter how low a gift card’s denomination, it’s considered a cash equivalent, so it’s taxable. Same thing with the tokens,  although, as an added wrinkle, under the doctrine of constructive receipt, you’ll probably have to tax employees when they earn the tokens, and not when they cash them out. And, finally, the value of any tangible item is taxable.

If you want to make HR happy, you can gross up the taxes. But that may make your finance department unhappy, since the company is now picking up employees’ taxes.

Oops! Benefits’ mistake is Payroll’s headache

Question: After our 2016 W-2s were filed with the Social Security Administration, our Benefits department informed us that it miscalculated the imputed income for certain executive benefits for three years—2014, 2015 and 2016. We know that we need to correct employees’ earnings for those years, but what, exactly, do we do?

Answer: You’ll need to file Forms W-2c for each year and Forms 941-X for each quarter to correct the income taxable wages and the FICA wages and taxes. Since you’re adjusting prior-year wages, you can’t correct the income taxes that were withheld.

If you overwithheld FICA, you should reimburse employees, obtain statements from them that they haven’t filed for a refund and file Form 941-X to claim a refund of the employee and employer portions of FICA.

If employees were underwithheld on their FICA taxes, collect the difference from them. They can either write a check payable to the company or have after-tax deductions made from their pay. If neither of those options is palatable, you can gross up the taxes.

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