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YOUR HEALTH CARE INDUSTRY EXPERTS |
At Harding, Shymanski & Company, P.S.C., we are committed to providing exceptional service - every time. We take our roles as Health Care industry leaders seriously, staying abreast of relevant issues and trends through research, national seminar attendance, and more. We work hard to help you enhance your day-to-day operations, increase cash flow, and improve your bottom line.
Our Health Care professionals actively participate in industry-related organizations. As a result, our services are based on the latest industry knowledge gained through active participation in these organizations. |
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Employers: Affordable Care Act Immediately Changes Pre-tax Handling of Individual Health Insurance Premiums | | IMPORTANT: This change applies to employers who pay individual health insurance policy premiums for employees or allow employees to pay those premiums pre-tax via payroll deduction. Employers who sponsor group health insurance policies are NOT affected by this rule.
Effective for plan years beginning on or after January 1, 2014, an employer can no longer reimburse or directly pay individual health insurance policy premiums on a pre-tax basis. Additionally, employees can no longer pay for their individual insurance premiums pre-tax via a cafeteria plan. This is not a change in tax law. A subtle rule in the Patient Protection and Affordable Care Act (PPACA) is driving the change.
To summarize the change:
- If employers pay these types of premiums directly or reimburse employees for individual insurance policy premiums, employers will need to include that payment in the employees' compensation as fully taxable wages.
- If employees have the cost of their individual policy premium withheld from their paychecks, that premium will need to be a post-tax deduction - not a pre-tax deduction.
- If so far in 2014 any individual health insurance policy premium has been withheld pre-tax, modifications should be made in the payroll system to tax those amounts as soon as possible.
- EXCEPTIONS: There are some very limited exceptions to this general rule such as if only one employee is involved or if the outside insurance is a group plan (e.g. medicare).
Nothing in this rule affects group health insurance.
Please contact Matthew Folz, CPA, Michael Vogel, CPA, or Michele Graham, CPA at 800.880.7800 if you would like to discuss this in more detail or if you need any assistance in determining next steps, if this change impacts your current practices. |
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2014 Inflation Adjustments |
| Filing Status* |
Standard Deduction |
Personal Exemption |
Phase-outs begin at AGI of:** | | Married filing joint or qualifying widow(er) |
$12,400 |
$3,950 |
$305,050 | |
Single |
$6,200 | $3,950 |
$254,200 | | Married filing separately |
$6,200 |
$3,950 |
$152,525 | |
Head of household |
$9,100 |
$3,950 |
$279,650 |
*Income tax rates remain unchanged; however the brackets have been increased for inflation.
**Itemized deduction phase-outs begin at the same limits as stated above.
Estates and Gifts
* Estate basic exclusion amount of $5,340,000
* Annual gift exclusion remains unchanged at $14,000
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Mileage Rates | |
Business |
56 cents | |
Medical or moving |
23.5 cents | |
Charitable |
14 cents |
| Contributions to employer-sponsored flexible spending arrangement | | |
Employee |
$2,500 |
| Health Savings Account contribution limits | | |
Individual |
$3,300 | |
Family |
$6,550 | |
Catch-up Contributions |
$1,000 | | | | IRAs | | |
IRA Contribution Limit |
$5,500 | IRA Catch-up Contributions
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$1,000
| | IRA AGI Deduction Phase-out Starting at | | |
Joint Return |
$96,000 | | Single or Head of Household |
$60,000 | | | | SEP | | |
SEP Minimum Compensation |
$550 | |
SEP Maximum Contribution |
$52,000 | |
SEP Maximum Compensation |
$260,000 | | | | SIMPLE Plans | | |
SIMPLE Maximum Contributions |
$12,000 | |
Catch-up Contributions |
$2,500 | | | |
401(k), 403(b), Profit Sharing Plans, etc. | | |
Annual Compensation |
$260,000 | |
Elective Deferrals |
$17,500 | |
Catch-up Contributions |
$5,500 | | Defined Contribution Limits | $52,000 |
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Federal Income Tax Withholding on Supplemental Wages |
What are supplemental wages? In general all wages that are not regular wages are supplemental wages. Although tips reported by employees and overtime pay meet the definition of supplemental wages, the regulations give employers the option of treating such payments as regular wages. The most common supplemental wages are bonuses and commissions.
There are two methods of withholding available to an employer with respect to a payment of supplemental wages when an employee has not received cumulatively more than
$1 million in supplemental wages for a calendar year.
The first method is the aggregate method. Using the employee's current Form W-4, the employer calculates the amount of withholding due by aggregating the amount of the supplemental wages with the regular wages paid for the current payroll period or for the most recent payroll period of the year of payment, thereby treating the aggregate as if it were a single wage payment for the regular payroll period. The employer must use the aggregate method if the optional flat rate method cannot be used.
The second method is the optional flat rate method. The employer disregards the amount of the regular wages paid to an employee as well as the withholding allowances claimed or additional withholding amount requested by the employee on his or her Form W-4. The employer uses a flat percentage rate in calculating the amount of withholding. The optional flat rate for 2014 is 25%. The employer must withhold at this rate if using the optional flat rate and cannot take into account requests by an employee that the rate be increased or lowered. This method can only be used if two conditions are met:
- The employer has withheld income tax from regular wages paid to the employee during the same year as the payment of supplemental wages or during the preceding calendar year.
- The supplemental wages are not paid concurrently with regular wages or are separately stated on the employee's pay stub.
If the conditions for using the optional flat rate are met, then the decision as to which method to use is discretionary with the employer. If the conditions are not met, then the employer must use the aggregate method.
If a supplemental wage payment--when added to all supplemental wage payments paid to an employee during a calendar year-exceeds $1 million, then the employer must withhold from wages in excess at a flat rate equal to the maximum tax rate in effect for that year. In 2014 that rate is 39.6%.
Please contact Jane Hildenbrand, CPP at 800.880.7800 if you would like to discuss this in more detail. |
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Harding, Shymanski & Company, P.S.C., provides accounting, tax, and consulting services to clients from offices in Evansville, Indiana, and Louisville, Kentucky.
Call us today! (800) 880-7800 |
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Disclaimer |
The information contained in this email is for general guidance on matters of interest only. The publication does not, and is not intended to provide legal, tax, or accounting advice. |
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