Tax filing day is fast approaching! While it may not seem obvious, tax law impacts a wide variety of human relations practices. Keep reading to learn more.
1. Taxable Income
Under Tax Code §61, anything that an employer provides to an employee or former employee is income to that employee/former employee. This applies to cash, property, benefits and rights. The employer has an obligation to withhold income and payroll taxes from the payment, unless a specific section of the Internal Revenue Code applies to it. Per Code §§3121 and 3401, employers are required to withhold income taxes and employee shares of FICA.
What about health-care premiums for retired employees? That’s a good question! Under Code §106, employer-paid premiums for health care coverage are exempt from federal income tax.
2. Organizational Changes that Impact Tax Benefits
Any change that impacts employee payroll might have corresponding changes for tax benefits. A Code §401(k) plan covers salary withholdings from all forms of compensation paid to the employee. If an employee receives additional compensation, then the plan would need to be updated to include or exclude this compensation from payment withholdings.
3. Written Documents Might be Required
Many tax filings require a written plan document for favorable tax treatment, which requires proof that the document terms were accurately followed. This plan needs to be periodically updated, and the IRS will ask for the document during an audit. The HR manager is the person responsible for administering the plan.
What about medical premiums? Code §125 allows employees to use pre-tax dollars to pay their portion of premiums for employer-sponsored medical coverage.
4. Out-of-state Employees
Some employees have relocated during COVID-19. Your HR manager will need to confirm the working location of every employee. Employees working out-of-state can create payroll and tax implications for your organization.
Contact the Davidson Group to discuss your HR-related questions.
