Employers often provide employees with special rewards or prizes as a means to boost morale, recognize achievements, acknowledge long-term service, and retain employees. These special perquisites can take on many forms – anything from holiday turkeys to gift cards to allowing employees to take home the employer’s products for free or at a discount. While these small additional benefits may seem like “gifts” from the employer to the employee, what employers sometimes fail to realize is that there are no “gifts” in the employment context, regardless of the employer’s intent. Generally, anything provided to an employee by an employer is includable in the employee’s taxable income unless specifically excluded under the Code. Common exclusions for perquisites to employees include: no-additional-cost services, qualified employee discounts, working condition fringes, and de minimis fringes. All of these exclusions have specific requirements and rules to qualify for the exclusion. For example, for a benefit… Continue Reading
Because of the various benefits, securities, and tax laws that apply to equity awards, what may be permissible (and even commonplace) in one jurisdiction, may be problematic in another. Accordingly, whenever an issuer desires to issue equity awards to service providers (e.g., employees or contractors) in a different jurisdiction, the issuer should engage benefits, securities, and tax counsel in all relevant jurisdictions early in the process to avoid any unanticipated issues that could negatively impact the value or purpose of the awards. For example, a common issue occurs when the issuer is an entity outside of the United States, but equity awards will also be made to service providers in the United States. Under U.S. tax law, there are specific requirements for determining the exercise price of stock options and stock appreciation rights (under Section 409A of the U.S. Internal Revenue Code (?Ç£Section 409A?Ç¥)) that require the exercise price to… Continue Reading
Puerto Rico to Allow Rollovers from the Government Plan for Puerto Rico Employees to Qualified Retirement Plans
On January 20, 2021, the Puerto Rico Department of Treasury released Administrative Determination No. 21-01 (?Ç£AD 21-01?Ç¥), allowing for direct and indirect rollovers of lump-sum distributions from the defined contribution government plan for Puerto Rico employees to a plan that is qualified under Section 1081.01(a) of the Puerto Rico Internal Revenue Code of 2011, as amended (the ?Ç£Code?Ç¥), maintained by a private-sector employer. Such rollovers would be considered exempt transactions and would not be subject to income tax withholding under Section 1081.01(b) of the Code. The provisions of AD 21-01 are effective immediately. AD 21-01 is available here.
On September 30, 2020, the IRS issued final regulations providing guidance on the business expense deductions for meals and entertainment under Section 274 of the Internal Revenue Code in light of changes made by the Tax Cuts and Jobs Act (the ?Ç£TCJA?Ç¥). The TCJA eliminated most deductions for business expenses related to entertainment, amusement, or recreational activities, but allowed taxpayers to continue to deduct certain business expenses for food and beverages, as we discussed in our prior blog post here. The final regulations (i) address the elimination of the deduction for most entertainment, amusement, or recreational activity expenses; (ii) provide guidance on what constitutes entertainment for such purposes; and (iii) address the limitation on the deduction for meal expenses. The final regulations will be effective on the date of their publication in the Federal Register, which is scheduled for October 9, 2020. Taxpayers who pay or incur business expenses for… Continue Reading
Previously, IRS Notice 2020-23 extended the due dates for certain tax payments, filings, and other ?Ç£Time-Sensitive Actions?Ç¥ that would ordinarily fall on or after April 1, 2020 through July 14, 2020 to July 15, 2020. See our prior blog post on Notice 2020-23 here. The IRS recently issued Notice 2020-35 to make additional Time-Sensitive Actions eligible for relief. For example, under this new guidance, an employer that receives a compliance statement issued under the voluntary correction program (VCP) component of the Employee Plans Compliance Resolution System (EPCRS) with a 150-day deadline to implement all corrective actions that ends between April 1, 2020 through July 14, 2020 has until July 15, 2020 to implement the corrections. A full list of the Time-Sensitive Actions is included in Section III.B of Notice 2020-35, which is available here.
IRS Issues Memorandum Providing Guidance on Income Inclusion, FICA, and Income Tax Withholding for Stock-Settled Equity Awards
The IRS recently issued Generic Legal Advice Memorandum No. AM 2020-004 (the ?Ç£GLAM?Ç¥) to address when income from nonqualified stock options, stock-settled stock appreciation rights, and stock-settled restricted stock units is (i) includable in an employee?ÇÖs gross income, (ii) subject to FICA taxes, and (iii) subject to federal income tax withholding. In addition, the GLAM provides a discussion of the deposit rules for FICA and income tax withholdings that have been withheld with respect to such equity awards, including the ?Ç£One-Day?Ç¥ rule (or the Next-Day Deposit Rule) that requires employers to deposit employment taxes on the next banking day after $100,000 or more in employment taxes have been accumulated. The GLAM provides a series of illustrative examples and analyses of such issues. The GLAM does not, however, address the impact of an employer?ÇÖs ability to defer employment tax deposits under Section 2302 of the Coronavirus, Aid, Relief and Economic Security… Continue Reading
Use Care When Implementing CARES Act Retirement Plan Distributions ?Çô State Law and Benefit Offset Concerns
As we have previously reported on our blog here and here, the CARES Act provided relief to participants in retirement plans by allowing employers to amend their retirement plans to include certain coronavirus-related distributions and to permit increased loan amounts for certain qualified individuals. Many employers have agreed to adopt these changes, and under federal law, the treatment of these distributions is clear. But there are other issues that employers and employees should consider, including: The coronavirus-related distributions could be subject to taxation under state law, even if the employee later repays the distribution to the plan; and If employees are receiving unemployment and/or disability benefits, the coronavirus-related distributions may reduce or offset these benefits. However, the enhanced loans would not be subject to taxation and may not offset unemployment and disability benefits, which may make the enhanced loan a better option for employees who anticipate paying back the distribution.… Continue Reading
CARES Act: Additional Guidance on the Interplay Between Social Security Tax Deferrals and Forgiveness of PPP Loans
In a new set of FAQs, the IRS clarifies that an employer who receives a loan under the Paycheck Protection Program (?Ç£PPP?Ç¥) may also defer payment of the employer portion of Social Security taxes due on eligible wages until the employer receives notice from its PPP lender that the loan has been forgiven. Under the CARES Act, employers of all sizes may defer payment of their portion of Social Security taxes due on wages earned between March 27, 2020 and December 31, 2020, until December 31, 2021 (50% of the deferred taxes are due) and December 31, 2022 (the remaining deferred taxes are due), subject to certain restrictions. One of those restrictions is that an employer may not defer its Social Security taxes if it has taken out a PPP loan and all or any portion of the loan is forgiven. The new FAQs clarify that, once an employer receives… Continue Reading
The Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥) offers relief to businesses affected by COVID-19 through various programs, including forgivable loans and federal income tax credits. However, the CARES Act prevents businesses from claiming certain benefits that are considered duplicative.?á The following checklist outlines key considerations for businesses when selecting among the Paycheck Protection Program (the ?Ç£PPP?Ç¥), the Employee Retention Tax Credit, the Employer Social Security Tax Deferral, and Work Opportunity Tax Credit. Certain industries, such as aviation, have specialized relief, which is beyond the scope of this checklist. In deciding what relief is appropriate, businesses should consider, as discussed in detail below, employer size, what may be best for the business?ÇÖs employees, and the business?ÇÖs long-term prospects. While this checklist is designed as a tool to assist businesses in choosing the proper relief, the best way to determine which option is optimal for a particular business… Continue Reading
In a series of news releases, notices, and FAQs, the IRS has begun to issue guidance on the various employer payroll tax credits and payment deferrals enacted by the Families First Coronavirus Response Act (the ?Ç£FFCRA?Ç¥) and the Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥). Links to the guidance are below, and more detailed information on the employee benefits, compensation, and employment tax provisions of the FFCRA and CARES Act can be found on our blog here. FFCRA Tax Credits: News Release: Implementation of Paid Leave and Tax Credits under the FFCRA. FAQs: COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses. Notice 2020-21: Effective Date for Employment Tax Credits under the FFCRA. CARES Act Tax Relief: News Release: Employee Retention Credit. FAQs: Employee Retention Tax Credit under the CARES Act. Notice 2020-22: Relief from Penalty for Failure to Deposit Employment Taxes. Forms… Continue Reading