I get a lot of questions on whether or not a payroll professional should get certified and if they should then which certification should they try for first. Should they go right into the CPP exam? Or start off with the FPC and work up to the CPP? Many payroll professionals are even confused as to which certification they could qualify for. In their blog, Payroll News, Symmetry Software has done a very nice and quick comparison of the two certifications offered by the APA. If you are looking to certify but aren’t sure which test to try for, take time to check out the blog today.
The IRS wants to make sure that employers understand tax ramifications of the various payments that they make to employees or that their employees might receive. So the IRS has posted a reminder for employers when it comes to tips verses service charges. The key difference between the two categories affect the taxation for employees as well as the reporting. So-called “automatic gratuities” and any amount imposed on the customer by the employer are service charges, not tips. Service charges are generally wages, and they are reported to the employee and the IRS in a manner similar to other wages. On the other hand, special rules apply to both employers and employees for reporting tips. Employers should make sure they know the difference and how they report each to the IRS.
- Cash tips received directly from customers.
- Tips from customers who leave a tip through electronic settlement or payment. This includes a credit card, debit card, gift card, or any other electronic payment method.
- The value of any noncash tips, such as tickets, or other items of value.
- Tip amounts received from other employees paid out through tip pools or tip splitting, or other formal or informal tip sharing arrangements.
Four factors are used to determine whether a payment qualifies as a tip. Normally, all four must apply. To be a tip:
- The payment must be made free from compulsion;
- The customer must have the unrestricted right to determine the amount;
- The payment should not be the subject of negotiations or dictated by employer policy; and
- Generally, the customer has the right to determine who receives the payment.
If any one of these doesn’t apply, the payment is likely a service charge.
What are service charges? Amounts an employer requires a customer to pay are service charges. This is true even if the employer or employee calls the payment a tip or gratuity. Examples of service charges commonly added to a customer’s check include:
- Large dining party automatic gratuity
- Banquet event fee
- Cruise trip package fee
- Hotel room service charge
- Bottle service charge (nightclubs, restaurants)
Generally, service charges are reported as non-tip wages paid to the employee. Some employers keep a portion of the service charges. Only the amounts distributed to employees are non-tip wages to those employees.
All cash tips and noncash tips should be included in an employee’s gross income and subject to federal income taxes.ployers are required to retain employee tip reports, withhold income taxes and the employee share of Social Security and Medicare taxes from the wages paid, and withhold income taxes and the employee share of Social Security and Medicare taxes on reported tips from wages (other than tips) or from other funds provided by the employee. In addition, employers are required to pay the employer share of Social Security and Medicare taxes based on the total wages paid to tipped employees as well as the reported tip income. Employers must report income tax and Social Security and Medicare taxes withheld from their employees’ wages, along with the employer share of Social Security and Medicare taxes, on Form 941, Employer’s Quarterly Federal Tax Return, and deposit these taxes in accordance with federal tax deposit requirements.Tips reported to the employer by the employee must be included in Box 1 (Wages, tips, other compensation), Box 5 (Medicare wages and tips), and Box 7 (Social Security tips) of the employee’s Form W-2, Wage and Tax Statement. Enter the amount of any uncollected social security tax and Medicare tax in Box 12 of Form W-2. See the General Instructions for Forms W-2 and W-3.
Reporting Service Charges: Employers who distribute service charges to employees should treat them the same as regular wages for tax withholding and filing requirements, as provided in Publication 15, Employer’s Tax Guide. Distributed service charges must be included in Box 1 (Wages, tips, other compensation), Box 3 (Social Security wages), and Box 5 (Medicare wages and tips) of the employee’s Form W-2.
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Every so often the IRS solicits comments on its various forms. This is an excellent opportunity for payroll professionals to get their two cents in on the forms they must deal with on a regular or sometimes irregular basis. This time, the IRS is soliciting comments concerning Forms 941 (Employer’s Quarterly Federal Tax Return), 941-PR (Planilla Para La Declaracion Trimestral Del Patrono-LaContribucion Federal Al Seguro Social Y Al Seguro Medicare), 941-SS (Employer’s Quarterly Federal Tax Return-American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands), 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, 941-X(PR), Ajuste a la Declaracion Federal Trimestral del Patrono o Reclamacion de Reembolso, Schedule R, Allocation Schedule for Aggregated Form 941 Filers, Schedule B (Form 941) (Employer’s Record of Federal Tax Liability), Schedule B (Form 941-PR) (Registro Suplementario De La Obligacion Contributiva Federal Del Patrono), and Form 8974 Qualified Small Business Payroll Tax Credit for Increasing Research Activities.
What about the Form 941 or any of the series do you find difficult, needs better explanations, could be revamped or should just be left as is? Now is the time to speak up.
Written comments should be received on or before July 7, 2017 to be assured of consideration, and should be directed to Laurie Brimmer, Internal Revenue Service, room 6526, 1111 Constitution Avenue NW., Washington, DC 20224. Requests for additional information or copies of the form and instructions should be directed to Ralph Terry, at Internal Revenue Service, room 6526, 1111 Constitution Avenue NW., Washington, DC 20224, or through the internet at Ralph.M.Terry@irs.gov.
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I just completed my registration for the American Payroll Association’s 2017 Virtual Congress & Expo. This is a free event for APA members which is held every year. This is the 8th year for the event and the 6th one I will be attending. This is the online companion to the Annual Congress. But for me it is the only one I can usually attend. I love attending the live, real world congress. I get to meet up with associates, network and gain valuable knowledge. However, my schedule just doesn’t permit me to take the time off to attend most years. But virtual congress is different. I can attend in the morning, take time to do one of my webinars and be back in the afternoon. I still get to network with old friends and make new ones using the networking lounge’s chat boards. I get to see all who are attending and can even contact attendees directly to say hello. The webinars are always educational. This year we are looking at such subjects as:
- State Unemployment Rates: How Did They Arrive at Our Rate?
- Is this Taxable?
- Global Payroll
- Calculations Your High School Teacher Never Taught You
I am really looking forward to these webinars. Virtual congress is the next best thing if your work schedule or budget just won’t let you attend Congress. So I hope to “see you there”. By the way did I mention that you can earn up to 15 RCHs for attending the webinars. And if you register but can’t attend everything, after the virtual congress concludes, the webinars are then open as on-demand webinars until August. This is great for me. I can catch up on the ones I had to miss due to work or that were scheduled at the same time as another topic I wanted to check out.
For more info check out the APA website.
As many of us who use Facebook know, the grammar police are constantly posting memes about the proper use of commas. Recently the placing of a comma came into play which cause one employer to have to pay back wages for overtime. The U.S. Court of Appeals for the First Circuit has overturned a federal district court opinion and ruled that dairy company delivery drivers are eligible to receive overtime under Maine’s overtime laws. At issue was Maine Rev. State. Ann. §664(3)(F), which provides an exemption from overtime for those involved in the “canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution” of perishable food. The drivers did not dispute that they handled perishable foods, but said that they do not engage in “packing” them, and therefore are eligible to receive overtime. The employer argued that the above provision actually refers to two distinct exempt activities (“packing for shipment,” and ”distribution”), and therefore the exemption from overtime applies to the drivers. The appellate court sided with the drivers. It said that the exemption would have applied to the drivers if the statute had read “packing for shipment, or distribution” rather than “packing for shipment or distribution.” Since the drivers did not pack items for either shipment or distribution, their activities did not come under the statutory exemption [O’Connor v. Oakhurst Dairy, CA1, Dkt. No. 16-1901, 3/13/17].
So watch out for where the commas are placed if you want to avoid penalties!
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The Senate confirmed Alexander Acosta as the 27th Secretary of Labor yesterday. The swearing in ceremony was conducted this morning by Vice President Mike Pence. I sent a tweet over to the new Secretary this morning wishing him well in his new job protecting the American worker. Now we need to wait and see where the new Secretary will take the DOL. There are quite a few outstanding issues, including the delay on the changes to who is entitled to overtime, left from the Obama Administration that the new Secretary will have to deal with. So will Mr. Acosta be a good Secretary of Labor? Only time will tell us that.
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Localities such as cities or counties have been enacting their own wage and hour requirements for quite a few years now. Dozens of cities in California and New Jersey have their own sick leave laws as well as higher than state minimum wages. New Mexico has local minimum wages as does Washington. But it seems the state legislators are starting to fight back. With the assistance of groups such as the American Legislative Exchange Council (ALEC) model bills (draft legislation that legislators may customize and introduce) have passed in several states. The latest states to pass such legislation are Arkansas and Iowa. These bill basically forbid the local governments from passing any type of law relating to minimum wage, living minimum rates, employment leave or benefits, hiring practices or any condition of employment that is more generous than the federal or state law. Whether cities will fight back in the courts, or if they even can, remains to be seen. Miami Beach recently tried to establish its own minimum wage despite Florida having passed its own version of the ALEC legislation. The court struck down the Miami Beach ordinance. So the fight continues. Payroll professionals need to monitor local minimum wage and sick leave ordinances to ensure compliance but remember these ordinances can be fleeting if the state has passed the ALEC-style legislation.