Are You Ready for the Year-End Payroll and AP Reporting Changes?

With 2020 fast approaching, healthcare organizations are preparing for their year-end 2019 filings and implementation of 2020 changes.

Outlined below are highlighted summaries of some of the changes to the more common retirement plan limits, payroll, fringe benefits and Forms 1099 that affect our compliance with payroll and accounts payable reporting.

Retirement Plan Updates

The Internal Revenue Service (“IRS”) recently released cost of living adjustments that affect retirement related limitations for 2020. Some of those changes include the following:

• Contribution limits for employees who participate in certain retirement plans such as IRC §401(k), §403(b) and most §457 plans increased from $19,000 in 2019 to $19,500 in 2020; the catch up contribution for those age 50 and over increased from $6,000 in 2019 to $6,500 in 2020.
• The limit on IRA contributions remains unchanged at $6,000 for 2020; the catch up contribution for those age 50 and over remains at $1,000.
• The limitation on the annual benefit for a defined benefit plan increased from $225,000 in 2019 to $230,000 in 2020.
• The limitation for defined contribution plans increased from $56,000 in 2019 to $57,000 in 2020.

Payroll Updates

The maximum earnings subject to social security tax were increased from $132,900 in 2019 to $137,700 for 2020. Rates for Social Security and Medicare taxes have remained the same; however, withholding charts have been updated to incorporate the tax rate table changes.

The U.S. Department of Labor (“DOL”) issued final overtime rules, effective January 1, 2020 which include the following:

• The standard salary level was raised from $455 per week to $684 per week, which equates to an annual salary of $35,568 for a full year worker.
• The annual compensation for highly compensated employees was raised from $100,000 to $107,432.
• Employers are allowed to use nondiscretionary bonuses and incentive payments (includes commissions) paid at least annually to satisfy up to 10% of the standard salary.

The DOL revisions will allow 1.3 million workers to be newly entitled to overtime. These thresholds have not been adjusted since 2004.

Starting in 2020, there is a new redesigned Form W-4, Employee’s Withholding Certificate. Employees who have submitted Form W-4 to their employer’s before 2020 are not required to provide the new Form W-4, unless they are looking to change their withholdings. The redesigned Form W-4 does away with the withholding allowances and now uses a 5 step approach. Employees will be able to provide employers with amounts to increase or reduce taxes and wages subject to withholding. A draft of the new Form W-4 and related FAQs are available on the IRS website.

Fringe Benefit Updates

The IRS annual adjustments also impacted certain fringe benefits, such as the following:

• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) has increased from $2,700 in 2019 to $2,750 in 2020.
• Health Savings Account (“HSA”) contributions for self only coverage increased from $3,500 in 2019 to $3,550 in 2020 and for family coverage increased from $7,000 in 2019 to $7,100 in 2020.
• Monthly commuter benefits, employee pretax limitations for mass transit and parking increased from $265 in 2019 to $270 in 2020. As part of the Tax Cuts and Jobs Act of 2017 (“Act”), starting in 2018, those pretax amounts were no longer deductible for employers. In addition, certain employee qualified parking costs were also no longer deductible as part of the Act, however not taxable to the employees. Accordingly, in 2018, not-for profit organizations were required to include those amounts as taxable unrelated business taxable income.

Forms 1099 Updates:

2019

2019 Forms 1099-MISC will generally be due to recipients by January 31, 2020. If there is reporting of nonemployee compensation (“NEC”) in Box 7, filing is also due by January 31, 2020. For other than Box 7 reporting, Forms 1099-MISC are due by February 28, 2020 for paper filers and March 31, 2020 for electronic filers.

A 30 day extension may be requested via Form 8809. If the extension request is for NEC reporting there is no automatic extension and the extension must be submitted on paper.

The backup withholding tax rate was reduced in 2018 to 24% and stayed the same for 2019 (and also for 2020). Back up withholding can apply to payments such as dividends, interest, rents, commissions or fees for services. Back up withholding may be required if the following conditions exist, including but not limited to, failure to provide a taxpayer identification number (“TIN”), providing incorrect TIN, underreported interest or dividends or failure to certify that they are not subject to backup withholding.

2020

In 2020 there will be a new Form 1099-NEC for reporting NEC. The 2020 Form 1099-MISC will be revised and rearranged accordingly due to the creation of Form 1099-NEC. Payers will no longer report NEC on Form 1099-MISC, rather NEC will be reported on the new Form 1099-NEC.

2020 Form 1099-NEC will be due by February 1, 2021 for both paper and electronic filing. 2020 Form 1099-MISC will be due by March 1, 2021 for paper filing or by March 31, 2021 for electronic filing. A draft of the new 2020 Form 1099-NEC and the revised 2020 Form 1099-MISC are currently available on the IRS website.

Electronic Filing Thresholds for Information Returns

Through 2020, electronic filingfor most information returns (W-2, 1099) is required if filing 250 or more forms. Starting with 2021 information returns,the electronic filing threshold is reduced from 250 to 100 or more forms filed in 2022 for the tax year 2021. After the 2021 year, the filing threshold will be reduced to 10 Forms. Filers will need to plan accordingly.

These are some of the highlights of the many changes affecting payroll and accounts payable reporting. For additional updates and details, please join us on December 17 for our webinar on 2019 Annual Update on Year-End Employer Payroll Tax and 1099 Reporting.

Author: Linda Gnesin | [email protected]