4 things that may mess up your December celebrations

Timing has not been the IRS’ strong suit lately. It’s waited until December to release key 2018 payroll guidance. Not to mention that time is ticking down on the 2019 W-4 and the percentage method withholding tables. The threat of a government shutdown is also looming. A December to remember, indeed.

2019 W-4 and Notice 1036 expected soon

The IRS announced that the 2019 W-4 and Notice 1036, which contains the 2019 withholding allowance amounts and the percentage method withholding tables, will be released during the week of the Dec. 10. That’s now.

We checked the IRS’ website on Dec. 10 and again on the morning of the 11th. So far, nothing for 2019 has been posted. You can check yourself by visiting the IRS’ Forms and Instructions webpage. Click on List All Current Forms and Instructions and then enter W-4 and 1036, respectively, in the search box.

Reprieve for furnishing 2018 Forms 1095 to employees

The IRS is extending the time you have to provide employees with Forms 1095-C/1095-B from Jan. 31, 2019, to March 4. This extension, however, doesn’t extend the time you have to file these forms with the IRS: The regular Feb. 28 (for paper filers) or April 1 (for e-filers) deadlines still apply.

As in prior years, you can provide employees with alternative proof of their coverage, including enrollment applications and booklets, or pay stubs showing cafeteria plan deductions.

The IRS is also extending good-faith penalty relief if you made reasonable efforts to prepare for reporting, such as gathering and transmitting data to your third-party provider or testing your ability to transmit the data to the IRS.

Government shutdown or not?

In a bit of bad luck, one of the outstanding appropriation bills concerns the IRS. Should the government shut down next week or the week after, you’ll still be required to make your tax deposits on time.

2018 income tax withholding on qualified equity grants

Qualified equity grants are non-cash compensation consisting of stock or restricted stock units, and are intended to compensate rank-and-file employees of startup companies. Although qualified equity grants came into the tax code with the Tax Cuts and Jobs Act, the IRS has only now issued guidance on income tax withholding for 2018.

If you have a qualified equity grant program, employees may elect to defer income taxes and withholding (but not FICA or FUTA taxes) until the earliest of these events:

  • The first date stock becomes transferable, including transferable to the employer
  • The date employees become excepted employees (e.g., executives)
  • The first date any of the employer’s stock becomes readily tradable on an exchange
  • The date that’s five years after the first date their right to the stock becomes substantially vested
  • The date on which employees revoke their elections.

You’re required to set up escrow accounts into which the stock will be placed once employees exercise their options and out of which you will withhold taxes. Employees who don’t agree to set up escrow accounts aren’t considered qualified employees.

You must withhold income taxes at the 37% rate before Dec. 31, 2018. The amount of income recognized at the end of the deferral period, and subject to income tax withholding, is based on the increase or decrease in the value of the stock when it first becomes transferable or not subject to a risk of forfeiture.

If you don’t know the exact value, you must make a reasonable estimate and withhold based on that, but you must determine the actual value by Jan. 31, 2019. If you end up paying the employee’s taxes out of the company’s funds because you underestimated, you can recover the taxes from employees before April 1, 2019.