Year-End Tax Guide For Compensation And Benefits

Grant Thornton LLP's Year-End Tax Guide for Compensation and Benefits is designed to give comprehensive information about the complex tax issues you worry about. We include a portion of the guide here. The full guide, available by downloading the PDF, includes more on health benefits (the Affordable Care Act) and filing and payment requirements, as well as tax law changes and practice tips.

This year we've put together three guides for your ease of use. In addition to the guide for compensation and benefits, take a look at our Year-End Tax Guide for Privately Held Businesses and our Year-End Tax Guide for Private Wealth Planning. Each guide is focused on its topic while being expansive in its coverage.

Contents

Introduction: Planning ahead Tax law changes: What's new this year? Compensation without desperation Retirement plans: Golden opportunities Health benefits: Adjusting to a new reality Your filing and payment requirements

Introduction: Planning ahead

It's that time of year again. Fall brings a flurry of activity for most compensation and benefits professionals. If you're not busy managing an open enrollment period, you're preparing for the next plan year and readying the company to meet all its information reporting deadlines in January, February and March.

Yes, your plate is already full, but don't forget about taxes. This is the perfect season to assess your compensation and benefits plans and identify potential tax exposure before it's too late. It is also a good time to look at the tax planning strategies that can help your company's bottom line. Tax planning is more important than ever this year. The Affordable Care Act (ACA) created a tangle of new mandates and requirements, which are now fully in effect, and Congress passed several tax bills over the past two years that affect many compensation and benefits tax issues.

It sounds like a lot to worry about, but relax. This Year-End Tax Guide for Compensation and Benefits is your reference tool for understanding all the important tax issues. We'll make you aware of critical new tax changes affecting your compensation and benefits plans and offer concrete tax planning tips that could help you and your employees right now. To make planning easy, we've organized the guide into five easy-to-understand sections on:

What's new this year Executive compensation Retirement plans Health care Information reporting But remember, this guide can't cover all possible strategies, and tax law changes are always possible. You should check with a tax professional for the most up-to-date tax rules and regulations before making any tax decisions.

Tax law changes: What's new this year?

Congress giveth, and Congress taketh away. Lawmakers enacted several changes last year that brought good and bad news for compensation and benefits plans. On the plus side, lawmakers made permanent a number of popular tax provisions, including the increased fringe benefit exclusion for transit benefits. Along the way, they delayed the unpopular "Cadillac tax" on high-cost health coverage and created a new safe harbor for small information reporting errors. Unfortunately, even with the relief, information reporting is getting harder. Congress accelerated the filing deadlines for wage and nonemployee compensation reporting, while the IRS said it will no longer grant automatic extensions for filing Form W-2. These changes are even more nerve-wracking when you consider that in recent years Congress dramatically increased the penalties for information return failures.

Parity for the transit fringe benefit exclusion

Congress gave employers a break on managing their fringe benefit programs. Employers can generally offer their employees transit and parking benefits without including the benefits in income, but the underlying rule in the tax code provided a higher limit for parking than transit. Congress had boosted the transit rate to create parity with parking many times, but only with a series of temporary extensions. These extensions were often enacted retroactively very late in the year, discouraging employees from taking sufficient transit benefits throughout the year and forcing employers to make last-minute changes in wage reporting and withholding. Those days are over. Congress has now made permanent the higher cap on tax-free employer-provided mass transit benefits. The allowable fringe benefit for transit now equals the parking allowance. The monthly limit for both is indexed for inflation and reached $255 in 2016.

Stricter filing deadlines

The IRS no longer allows automatic extensions for filing Form...