APA Weighs In on By Alice P. Jacobsohn, Esq.
Federal Pay-Related Legislation
President Obama has signed H.R. 2029, the Consolidated Appropriations Act, 2016 (Public Law No. 114-113. The bill includes 37 separate acts. The APA's Government Relations team tracked several of the acts that impact payroll professionals.
The Financial Services and General Government Appropriations Act secures additional funding for the IRS. The law includes $11.235 billion for the IRS, which is $290 million more than the fiscal year 2015 funding level. Still, the amount falls far short of that required to fully fund all IRS programs. Further, the IRS does not have complete discretion regarding how the money is spent. Congress has designated money for certain activities, such as $206 million for operating expenses of the Taxpayer Advocate Service, $4.86 billion for enforcement, $3,638,446,000 for taxpayer services, and $290 million for business systems modernization. The APA wrote a letter to Congress in September urging leaders to fully fund the IRS.
In addition to funding, H.R. 2029 requires the IRS to maintain an employee training program, focus enforcement on protecting taxpayer information and identity theft, sufficiently staff the 1-800 help line service, and issue notices of confirmation for address changes of employers to ensure that communication on tax payments goes to the correct location. The APA supported these efforts through member representation on various IRS committees and discussion with the APA's IRS Issues Subcommittee of the Government Relations Task Force (GRTF).
In a meeting in late December with the APA and other representatives from the payroll community, Commissioner of Internal Revenue John Koskinen said that reduced funding levels had taken a toll on the IRS's ability to fulfill its mission. In order to meet certain requirements, it has had to draw resources from other programs and projects. The additional $290 million for 2016 is a welcome development that the commissioner likened to turning a battleship: it's a start toward moving in the right direction.
Accelerated Form W-2 Filing
The Protecting Americans From Tax Hikes Act of 2015, or PATH Act, was an amendment added to H.R. 2029. This tax extenders bill accelerates the filing date for paper and electronic Forms W-2 and Forms 1099-MISC to January 31 beginning with forms filed in 2017. Payroll professionals generally were not proponents of an accelerated deadline; however, with momentum to take this action to prevent identity theft and refund fraud, the APA accepted an accelerated deadline as inevitable, warning that it will likely affect the accuracy of the data reported.
The PATH Act has three significant provisions that impact payroll professionals:
Commuter Benefits Parity
- First, the legislation offers employers time to make changes to their processes to accommodate the new deadline.
- Second, the PATH Act authorizes the IRS to allow truncated social security numbers on employee copies of Forms W-2.
- Third, and extremely important, the law includes a safe harbor from penalties for failing to file correct forms and provide employees with correct statements. However, the safe harbor is limited to single amounts of $100 or less and of $25 or less for errors in tax withholding or backup withholding. Employers are not required to provide employees with a corrected form unless they ask for one. Employer penalties remain a possibility if employees ask for corrected forms. The accelerated deadline does not apply to other information returns, such as Affordable Care Act forms (Forms 1094-B, 1094-C, 1095-B, and 1095-C).
In November and December, the APA sent letters to members of the House and Senate regarding parity in commuter benefits. The first letter sent to Sens. Charles Schumer (D-N.Y.), Robert Menendez (D-N.J.), and Richard Durbin (D-Ill.) suggested that commuter benefits for parking and transit could be fixed through the highway funding bill. The second letter went to Rep. Kevin Brady (R-Texas), Chairman of the House Committee on Ways and Means, and to House and Senate leadership, regarding the Commuter Benefit Parity Act of 2015 (H.R. 990). In both letters, the APA asked that parity for commuter benefits apply permanently and not retroactively.
The PATH Act restored parity at $250 per month retroactive to 2015, but made parity permanent beginning in 2016. The amount is indexed for inflation going forward, and the maximum monthly benefit is $255 for 2016. The retroactive provision can be a nightmare for payroll professionals. If an employer provided mass transit benefits in excess of the original 2015 amount ($130 per month) and treated the excess as taxable wages, employees will be over-withheld. Employers need to refund the over-withheld taxes. For employers that only provided pre-tax transit benefits up to the original 2015 amount, no action is required. IRS Notice 2016-06 allows employers to include the adjustment in their fourth quarter Form 941 and employees' W-2s or make adjustments through Forms 941-X and W-2c. Mobile Workforce Bill
On another front, the APA sent a letter in December to Rep. Bob Goodlatte (R-Va.), Chairman of the House Judiciary Committee, regarding the Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315). The APA is part of a coalition pushing for relief of income taxes for employees who live and work in multiple states. This effort would support employees and lower the burden on payroll professionals required to calculate and file these taxes. Multistate Associates Inc. manages the coalition. Through the coalition, APA staff met with House and Senate members and sometimes supported the coalition's efforts with separate action, such as this letter.
The APA urged Goodlatte "to release the House Judiciary Committee report for the bill and include the chairman's request to put the bill on the House suspension calendar." In June, the U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law conducted a hearing on H.R. 2315. The bill cannot go for debate and vote before the full House until Goodlatte issues his report and asks to place the bill on the agenda. The suspension calendar is for proposed legislation on noncontroversial matters that do not require lengthy consideration or additional taxpayer dollars. The House Judiciary Committee passed the bill by a 23 to 4 vote on June 17 and, as of this writing, 130 bipartisan cosponsors are attached to it. This makes the bill eligible for the suspension calendar.
The letter included a list of problems when employees work and reside in multiple states, including:
- Burden on employers who must verify reciprocity agreements between states and, in some instances, localities;
- Inconvenience for employers to determine nexus for state tax purposes for workers on temporary assignments, notably if the employer does not have a physical presence or regularly provide services in a state;
- Unfair taxation for employees who perform services in a state with higher taxes when they reside in a different state, especially if the resident state does not have income taxes; and
- Unfair taxation for employees who are double-taxed if they work in one state and live in another, particularly if one of the taxes cannot be credited against the other.
The APA will continue to push for mobile workforce legislation on the Hill because it is a critical issue for members. The IRS Issues Subcommittee continues to watch IRS funding and programming. While H.R. 2029 did not correct all of the problems for members, permanent commuter parity and a safe harbor for minor W-2/1099 errors are significant steps forward. Alice P. Jacobsohn, Esq., is Senior Manager of Government Relations for the APA.