Payroll questions... We get payroll questions! From time to time, we publish payroll-related questions and answers in our eNewsletter so our readers can share the knowledge. GENERAL QUESTIONS Question: Last year we had several employees question why we listed dependent care benefits on Form W-2, box 10. This amount reflected dependent care expense which was deferred into their flexible spending account. Can you confirm that deferrals to dependent care flexible spending accounts should be listed in this box?
Answer: Yes, you were correct by adding the dependent care benefits in Box 10 of Form W-2. The amount in Box 10 (up to $5,000) is offset on Form 2441 when they file their tax returns.
Q: Our Local Services Tax rate is $10. We employ many part-time people. Am I correct that since our tax rate is only $10 the Income Exemption does not apply?
A: Yes, you are correct, they will not qualify for the $12,000 Income Exemption. The Income Exemption only applies if the Local Service Tax rate is greater than $10.
Q: We have a partially-retired employee age 70. Should I still be withholding Medicare Tax since he is over full retirement age of 66?
A: Yes, Medicare Tax must be withheld on all wages. When an employee reaches full retirement age, their Social Security payments are not affected by the amount they are earning.
Q: If an employee earned less than $12,000 in 2007 and files for the Local Service Tax Exemption, but earns over $12,000 in 2008, is the employer required to withhold the tax over the remaining pay periods?
A: Yes, if the employee earns more than $12,000 then the employer is required to withhold the Local Services Tax even if the employee filed the exemption.
Q: Can Form 1099-Misc be filed electronically?
A: Yes. Form 1099-Misc can be filed through the IRS's FIRE (Filing Information Returns Electronically) system. Since FIRE does not provide an electronic fill-in form, you must have software that can produce the file in the proper format (see Pub. 1220 for specifications). HEALTH SAVINGS ACCOUNTS Question from the employer's perspective: Q: What are the 2009 amounts for Health Savings Accounts? A: According to the U.S. Treasury and IRS, the inflation-adjusted amounts for Health Savings Accounts for calendar year 2009 include: The annual limitation on deduction for an individual with self-only coverage under a high-deductible plan is $3,000 It is $5,950 for an individual with family coverage
The "high deductible health plan" is defined as a health plan with an annual deductible that is not less than $1,150 for self-only coverage or $2,300 for family coverage and annual out-oof-pocket expenses (deductibles, co-payments and other amounts, but not premiums) do not exceed $5,800 for self-only coverage or $11,600 for family coverage.
Catch-up contributions for individuals age 55 or over will increase to $1,000.
Q. All employer contributions to an employee's Health Savings Account must be reported in Box 12 of Form W-2, using Code W. Is this taxable?
A: No.
Questions from the employee's perspective:
Q. If my employer made contributions to my Health Savings Account during 2007, must I do anything special?
A: Yes, when filing your federal tax return, Form 8889, Health Savings Accounts, must be included with your tax return.
Q: Must I pay tax on this?
A: No.
Q: If I contributed through payroll deductions to my Health Savings Account, must I do anything special?
A: Yes, Form 8889 must be filed with your federal tax return.
Q: If I took distributions from my Health Savings Account to pay for qualified medical expenses, is this taxable?
A: No, but Form 8889 must be filed with your tax return.
Q: What are the maximum Health Savings Account contribution amounts for 2008?
A: The maximum Health Savings Account contribution amounts for 2008 are:
$2,900 for individual coverage
$5,800 for family coverage
In addition, $900 catch-up contributions are allowed for individuals aged 55 - 64
Q: Does the maximum contribution amount include the employer's contribution?
Yes, the amounts above include both employer and employee contributions.
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