Federal Payroll Updates
Federal Employment Tax Deadlines for November
This article provides the November payroll tax deposit deadlines for semi-weekly and monthly depositors below.
Semi-weekly depositors. Semi-weekly depositors must deposit the income tax they withheld from employee wages, and both the employee and employer share of Social Security and Medicare taxes (FICA taxes), by the end of Wednesday if the payday was on the previous Wednesday, Thursday, or Friday; or by the end of Friday if the payday was on the previous Saturday, Sunday, Monday, or Tuesday.
A due date that falls on Saturday, Sunday, or a legal holiday is postponed until the next business day. Semi-weekly depositors must have at least three business days after the end of a semiweekly period to deposit their taxes.
The November deposit deadlines for semi-weekly depositors are as follows:
• November 1 - deposit the taxes for payments made October 26-29.
• November 6 - deposit the taxes for payments made October 30-November 1.
• November 8 - deposit the taxes for payments made November 2-5.
• November 14 - deposit the taxes for payments made November 6-8.
• November 15 - deposit the taxes for payments made November 9-12.
• November 20 - deposit the taxes for payments made November 13-15.
• November 22 - deposit the taxes for payments made November 16-19.
• November 27 - deposit the taxes for payments made November 20-22.
Tips. Employees must report tips of $20 or more earned during October to employers by November 10.
Form 941 for Third Quarter. By November 12, file Form 941 for the third quarter of 2024. This due date applies only if a taxpayer deposited the tax for the quarter timely, properly, and in full.
Holidays. Monday, November 11 (Veterans Day) and Thursday, November 28 (Thanksgiving Day) are federal holidays.
Monthly depositors. Filers who have a monthly deposit frequency must deposit the tax for October by November 15.
GAO Reports on IRS' Preparations for New Information Reporting Requirements
The Government Accountability Office (GAO) has published a report evaluating the IRS' work to implement two new information reporting requirements — the change of existing reporting requirements for payments made through Third-Party Settlement Organizations (TPSO) and new reporting requirements for digital asset transactions. (GAO-24-107028)
As described by GAO, the report evaluated the extent that the IRS is prepared for additional information reporting and described the benefits and burdens of information returns.
"The IRS has taken steps to implement information reporting changes, but GAO identified actions for IRS to be more prepared," the report said.
According to the report, in the past, TPSOs were not required to report payments on Form 1099-K unless they exceeded $20,000 and an aggregate of 200 transactions. As the situation now stands, TPSOs must report payments that exceed $600 annually. "IRS decided to delay full implementation for 2 years and did not consistently document risks for its decisions," GAO noted, adding that "documenting risks will help ensure IRS has a sound rationale for decisions and is prepared for the reporting threshold change."
Regarding Form 1099-DA, the IRS has commenced its planning for outreach and educational efforts for digital asset reporting in its communication strategy. However, the IRS "is missing an opportunity to apply lessons learned from its Form 1099-K implementation efforts, such as what did and did not work well," GAO said.
In addition, the agency did not have plans regarding the evaluation of its communications work. "Incorporating lessons learned and evaluating outreach and education efforts could help IRS more effectively prepare for the new reporting and adjust communication efforts, if needed," the report said.
Finally, the report discussed both the "benefits and burdens" of information returns.
IRS Announces 2025 Tax Adjustments: Key Payroll Changes for Workers and Employers
The IRS announced inflation adjustments for the 2025 tax year, including increases in standard deductions, adjustments to tax brackets, and changes to various employee benefits and tax credits, which will impact both workers and employers in their payroll and tax planning for the upcoming year (IR 2024-273, 10/22/2024; Rev. Proc. 2024-40).
Qualified transportation fringe benefits. For 2025, an employee will be able to exclude up to $325 a month for qualified parking expenses, and up to $325 per month or the combined value of transit passes and transportation in a commuter highway vehicle. See Payroll Guide ¶ 3585 et seq. for further information on the above limitations.
Long-term care premiums. Amounts paid for insurance that covers qualified long-term care services are treated as medical expenses up to specified dollar limits that vary with the age of the taxpayer as of the close of the tax year. For a taxpayer age 40 or younger, the 2025 limit increases to $480; older than 40 but not more than 50, $900; older than 50 but not more than 60, $1,800; older than 60 but not more than 70, $4,810; and older than 70, $6,020.
Payments received under qualified long-term care insurance. Amounts received under a qualified long-term care insurance contract are generally excludable from income as amounts received for personal injuries and sickness, subject to a per diem limitation, which will be $420 in 2025. For further information on long-term care insurance, see Payroll Guide ¶3417.
Archer MSAs. For Archer MSA purposes, in 2025, a “high deductible health plan” will be a health plan that: (1) in the case of self-only coverage, the annual deductible is at least $2,850 and not more than $4,300; in the case of family coverage, the annual deductible is at least $5,700 and not more than $8,550; and (2) the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,700 for self-only coverage, and $10,500 for family coverage. For further information on Archer MSAs, see Payroll Guide ¶ 3406.
Limit on health FSA salary reduction contributions under a cafeteria plan. For purposes of determining whether a health flexible spending account (health FSA) benefit will be a “qualified benefit” under the 2025 plan year, the cafeteria plan must provide that an employee may not elect to have salary reduction contributions in excess of $3,300 made to the health FSA. The maximum carryover amount for a cafeteria plan that permits carryover is $660. See Payroll Guide ¶ 3510 for further information on health FSAs.
Small employer health insurance credit. An eligible small employer may claim, subject to a phaseout, a credit equal to 50% of nonelective contributions for health insurance for its employees. The credit is reduced under certain circumstances, including if the average annual full-time equivalent wages per employee are more than $33,300 for 2025. See Payroll Guide ¶ 3404.
Qualified small employer HRA. For 2025, a qualified small employer HRA (see Payroll Guide ¶ 3405) is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical care expenses of an eligible employee that do not exceed $6,350, or $12,800 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee.
Adoption exclusion. Employer-provided adoption assistance may be excluded from an eligible employee's income for purposes of FIT and FITW if the benefits are provided as part of a qualified adoption assistance program (see Payroll Guide ¶ 3542). The adoption exclusion per child (whether or not he or she has special needs) will be limited to $17,280 in 2025. The adoption exclusion will begin to phase out for taxpayers in 2025 with adjusted gross income (AGI) of over $259,190, and will be fully eliminated when AGI reaches $299,190.
Wage levy. The weekly amount of an individual’s salary, wages, etc. exempt from levy for 2025 is $5,100 multiplied by the number of the taxpayer’s dependents for the tax year of the levy, plus the taxpayer’s standard deduction, divided by 52 (see Payroll Guide ¶17,274).
Property exempt from levy. The value of property exempt from levy under (fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) may not exceed $11,710 for levies in 2025. The value of property exempt from levy under (books and tools necessary for the trade, business, or profession of the taxpayer) may not exceed $5,860 for levies issued in 2025. For further information on tax levies, see Payroll Guide ¶ 17,274.
Deemed substantiation for reimbursement of employee expenses. Under an optional deemed substantiation rule, eligible employers in the pipeline construction industry can provide reimbursements that will be treated as made under an accountable plan to employees who furnish welding rigs or mechanics rigs (see Rev Proc 2002-41, 2002-1 CB 1098). For calendar year 2025, an eligible employer may pay up to $22 per hour for rig-related expenses. If the employer provides fuel or otherwise reimburses fuel expenses, an eligible employer may pay up to $14 per hour (see Payroll Guide ¶ 3690).
Foreign earned income exclusion. Individuals who have a tax home in a foreign country, and who satisfy either a bona fide foreign residence test or a foreign physical presence test, may elect to exclude a certain amount of their foreign earned income from gross income in a tax year. The foreign earned income exclusion amount will increase to $130,000 in 2025. See Payroll Guide ¶ 21,110 for further information on the foreign earned income exclusion.
Your Guide to Year-End 2024: Dependent Care Benefits
As the year-end approaches, payroll professionals and employers face various challenges in processing and reporting employee benefits. This year-end guide focuses on Dependent Care Assistance Programs (DCAPs) and their implications for year-end payroll processing.
Understanding DCAPs. DCAPs are employer-sponsored benefits that help employees manage expenses associated with caring for qualified dependents. These programs either provide dependent care services directly or reimburse employees for eligible expenses. For additional information on dependent care assistance programs, including qualifications and reporting requirements, see Payroll Guide ¶3655.
Key requirements for eligible DCAP programs. To maintain compliance, DCAP programs must adhere to several requirements:
• The program may not discriminate in contributions, benefits, or eligibility in favor of highly compensated employees (HCEs) or their dependents (See Payroll Guide ¶3225 for the definition of HCEs).
• No more than 25% of the dependent care assistance during the year may be provided to shareholders or owners (or their spouses or dependents) who own more than 5% of the stock, capital, or profits interest in the employer.
• The program may, but need not be, funded.
• Reasonable notice of the availability and terms of the program must be provided to eligible employees.
• The plan must give a written statement to each employee showing the amounts paid or expenses incurred by the employer in providing dependent care assistance to the employee during the calendar year. The statement must be furnished on or before January 31 of the following year (see Payroll Guide ¶4260 for reporting dependent care benefits on Form W-2).
• The average benefit provided to non-highly compensated employees under all plans of the employer must be at least 55% of the average benefits provided to HCEs under all employer plans. For purposes of providing benefits under a salary reduction agreement, a plan may disregard employees with compensation below $25,000.
Taxation of Dependent Care Benefits. For the 2024 tax year, the maximum exclusion from wages for a DCAP remains at $5,000 ($2,500 if married filing separately). Contributions up to this limit are generally exempt from various taxes, including FICA, federal withholding, and unemployment taxes
Up to that $5,000 limit, DCAP contributions are exempt from:
• FICA (Social Security and Medicare)
• Federal withholding
• State Withholding (taxable in Pennsylvania)
• Local withholding (taxable for purposes of PA earned income, local services and the Pittsburgh payroll taxes)
• Federal unemployment
• State unemployment
Reporting of Dependent Care Benefits. Up to $5,000 of the value of DCAP is reported in Box 10 of Form W-2, Wage and Tax Statement. Any amounts that exceed $5,000 must be reported as wages in Box 1, 3, and 5.
Critical year-end tasks for payroll professionals. To prepare for DCAP during year-end, verify all employee dependent care benefit information is accurate and up-to-date, ensure the total dependent care benefits for each employee are correctly calculated, prepare to issue written statements to employees by January 31, 2025, and review and adjust payroll systems to reflect any changes in DCAP regulations for the upcoming year.
Considerations for employers. Employers should consider evaluating the effectiveness of their current DCAP in attracting and retaining talent, contributing to employees' dependent care FSAs, ensuring combined contributions don't exceed the IRS annual maximum, and educating employees about the benefits of DCAPs and how they can maximize their tax savings.
E-Verify Records Disposal Scheduled for January 5, 2025
E-Verify employers across the United States are facing a critical deadline set by the U.S. Citizenship and Immigration Services (USCIS) to download and retain important employment verification records. The agency announced that E-Verify records for cases last updated on or before December 31, 2014, will be disposed of on January 6, 2025.
This move affects a significant number of employers who use the E-Verify system to confirm the eligibility of their employees to work in the United States. To ensure compliance and maintain necessary documentation, employers have until January 5, 2025, to take action.
The USCIS is urging program administrators to download the Historic Records report, which contains vital information about these older E-Verify cases. This report includes essential data such as basic company information, case identifiers, and case resolution details.
Employers who have not already done so are required to record the E-Verify case verification number on each corresponding Form I-9 or attach a copy of the case details page to the form. Additionally, the Historic Records Report should be retained alongside the Forms I-9 for record-keeping purposes.
This initiative is part of USCIS's ongoing efforts to manage E-Verify records efficiently while ensuring that employers have access to the necessary information for compliance. The agency has provided resources, including a fact sheet on E-Verify Records Retention and Disposal and instructions for downloading the Historic Records report, to assist employers through this process.
As the deadline approaches, employers are encouraged to act promptly to download and secure these records. This proactive approach will help businesses maintain compliance with employment verification regulations and avoid potential issues that could arise from the loss of this historical data.
Employers using E-Verify are advised to review their records and take the necessary steps to preserve information about cases that fall within the specified timeframe.
The USCIS provides an E-Verify records retention and disposal fact sheet with further information. For more information on E-Verify, see Payroll Guide ¶20,380, Payroll Guide ¶20,040, and Payroll Guide ¶20,035.
PTIN Renewal Season Now Underway
The IRS has announced that it is now accepting applications and renewals from tax professionals who need a Preparer Tax Identification Number (PTIN) for 2025. The fee to obtain or renew a PTIN for 2025 is $19.75. (e-News for Tax Professionals 2024-42, 10/18/2024)
PTIN required. Under current law, anyone who prepares or assists in preparing federal tax returns or refund claims for compensation must have a valid PTIN before preparing or filing any returns. All enrolled agents must also have a valid PTIN.
Renewal PTINs. All 2024 PTINs will expire on December 31, 2024, so everyone who will be preparing returns or refund claims in 2025 must renew their PTINs.
Current PTIN holders will receive formal renewal notification from the IRS Return Preparer Office in the coming weeks.
For more information on PTINs, see Payroll Guide ¶2100 and Payroll Guide ¶4225.
This article originally appeared in Federal Tax Updates.
Final Regs Issued Regarding Withholding on Section 3405 Distributions
The IRS has finalized regs under Code Sec. 3405(a) and Code Sec. 3405(b) to amend income tax withholding rules on certain periodic payments and nonperiodic distributions from employer deferred compensation plans, individual retirement plans, and commercial annuities that are not eligible rollover distributions. (TD 10008, 10/18/2024)
In March 2019, the IRS issued proposed regs generally adopting existing guidance provided in Notice 87-7, released in the wake of withholding changes in the Tax Reform Act of 1986. The notice applied to taxpayers who make distributions from deferred compensation plans, individual retirement accounts, or commercial annuities and explained their responsibilities to withhold from such distributions for the payee's income tax liability under Code Sec. 3405.
The 2019 proposed regs addressed requests for clarifications from stakeholders regarding certain situations, such as when:
• The payee provides the payor with an Army Post Office (APO), Fleet Post Office (FPO), or Diplomatic Post Office (DPO) address; or
• The payee provides the payor with a residence address located within the U.S. but provides payment instructions that request delivery of the designated distribution to a financial institution or other person located outside of the U.S.
With respect to payees with a military or diplomatic post, the IRS determined that designated distributions to personnel or their families should not be treated as delivered outside of the U.S. The regs also require payors to withhold in certain circumstances when a payee provides a residence address located within the U.S. but also provides payment instructions indicating that the funds are to be delivered outside of the U.S. Withholding also applies for those who have not provided a residential address.
Additionally, the regs clarify the withholding rules do not apply to designated distributions that do not include a distribution that is subject to withholding under subchapter A of chapter 3. This is applicable to a U.S.-source distribution to a nonresident alien from a trust as described in Code Sec. 401(a). Instead, treatment would follow Code Sec. 1441.
Final regs released October 18 adopt the proposed regs without substantive changes and apply to payments and distributions made on or after January 1, 2026. The IRS specified, though, that taxpayers may follow the regs for earlier payments and distributions. Notice 87-7 will not apply to payments and distributions made after December 31, 2025.