What AP Needs to Know
about Payroll and Vice Versa
Presented on Wednesday, October 26, 2016
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©2016 The Payroll Advisor
©2016 The Payroll Advisor
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Housekeeping
3
Credit
Questions
Today’s
topic
Speaker
©2016 The Payroll Advisor
To earn RCH credit you must
4
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the full 60 minutes
Be watching using
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Certificates
delivered by email,
to registered email,
by November 25th
©2016 The Payroll Advisor
Our Focus For Today
5
Sharing information all year long—working
together to ensure compliance
 Potential taxable payments—could go either
way
 Nontaxable but reportable payments
 Definitely nontaxable payments
 Definitely taxable payments

©2016 The Payroll Advisor
About the Speaker
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Vicki M. Lambert, CPP, is President and
Academic Director of The Payroll
Advisor™, a firm specializing in payroll
education and training. The company’s
website www.thepayrolladvisor.com offers
a subscription payroll news service which
keeps payroll professionals up-to-date on
the latest rules and regulations.
©2016 The Payroll Advisor
Working with Payroll
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Must be a year round relationship
Begin collecting data as soon as year-end is over or
even sooner
Data should be collected and distributed monthly as
a best practice
Payroll creates the spreadsheet for the payment
type—sends to AP at the end of each month—AP
sends back to payroll by 15th of following month
with payments for that month
©2016 The Payroll Advisor
Example of Spreadsheet
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For moving expenses the spreadsheet could
look like this…
Employee Information
Last
Name
First
Name
ID #
Check Information
Check
Date
Check #
Payable
To
Payment Breakdown
Check
Amount
Or your system may be able to generate a report
©2016 The Payroll Advisor
Purpose of Payment
Payment
Amount
Working with Payroll
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Payroll should come to
Accounts Payable
Payroll is responsible for the
reporting and taxation of
wages therefore they should
provide the spreadsheets they
need to gather the info
But AP needs to make sure
they do
©2016 The Payroll Advisor
Working with Payroll
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AP needs to keep payroll informed
as well…
Payroll may not be aware of
payment
If AP is asked to make a one-time
payment that is out of the “norm”
payroll needs to know
If it is a new type of payment
payroll also needs to know
©2016 The Payroll Advisor
Anything Off the Table?
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Direct reimbursement of
business expenses is the only
thing off the table
Unless it exceeds limits
Everything else must be
given to payroll
Nothing is “too small”
©2016 The Payroll Advisor
Payroll Makes the Call
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Payroll should make the call
when it comes to the taxability or
reportability of all payments
They also get the personal
penalties if the call is “wrong”
Basically this is payroll’s field of
expertise so let them use this
knowledge
©2016 The Payroll Advisor
Payment Overview
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
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Anything given to an employee may be
a form of payment for the performance
of services
Someone must determine the taxation
Usually FIT, FICA and FUTA and state
equivalents but not always
©2016 The Payroll Advisor
Taxing and Reporting
Non-payroll Payments
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Can be added to the payroll at any time
Most non-payroll payments are added to the payroll
for taxation and reported as imputed income
Income recognized but not received through the
payroll department
Add to the gross  calculate and withhold taxes 
deduct before calculating net of check
©2016 The Payroll Advisor
Determining the Taxation
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First thing to remember!
CASH or ITS EQUIVALENT IS
ALWAYS TAXABLE!
Even ONE RED CENT!
©2016 The Payroll Advisor
De Minimis
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Falls under Section 132 of IRC
Any property or service provided to an
employee that has so little value that
accounting for it would be unreasonable
or administratively impractical
Have to take into account how often and
to how many employees it is given
No de minimis on CASH or its equivalent!
IRS does not provide a $$ threshold
©2016 The Payroll Advisor
De Minimis Examples
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Personal use of photocopier if no
more than 15% of total use
Group meals, employee picnics
Occasional tickets to sports events or
shows not given as an award—
everybody goes
Occasional Meals for working
overtime
Occasional Coffee, donuts or soft
drinks
©2016 The Payroll Advisor
Relocation
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Excluded if qualified under section 132
Must meet time and distance tests
Time Test:
 Employee works at least 39 weeks
during the first 12 months in new job
location area
Distance Test:
 New job location is at least 50 miles
farther from the employee’s old home
than the old job location was.
©2016 The Payroll Advisor
Relocation Expenses…
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Qualified expenses include:
 Moving household goods one way
one time
 Moving household members one
way one time
Everything else is
taxable/reportable
Report nontaxable paid to
employee box 12 code P
©2016 The Payroll Advisor
Example:
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The company relocated Paul
from City A to City B in the first
quarter of this year and paid
for the move.
©2016 The Payroll Advisor
Example of AP Payments…
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United Van Lines to move household goods from City A
to City B $21,642
American Airlines to fly Paul and his family members
from City A to City B one way one time $3,692.72
American Airlines to fly Paul home to City A while
family was still living in old home $3692.72
Oak Park Apartments for temporary quarters for Paul
while his family remained in City A and prepared for
the move $2,600
Paul to reimburse him for meals while staying at Oak
Park Apartments $364
©2016 The Payroll Advisor
Ours (and the IRS’s) Questions Are…
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Does the move qualify under
Section 132?
 What is taxable income to Paul?
 What is reported on Form W-2 but
not taxed?
 What is not reported and
nontaxable?
AP reports to Payroll the following…

©2016 The Payroll Advisor
Spreadsheet from AP for March
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Employee Information
Last
Name
Smith
First
Name
Paul
ID #
123456
Check Information
Check
Date
3/15/2013
Check #
84620
Payable To
American
Airlines
Payment Breakdown
Check
Amount
Purpose of Payment
$7,385.44 Fly Paul back and forth to visit family
Fly Paul and his family to new job
3/20/2013
3/25/2013
3/30/2013
84625 Oak Park Apts
United Van
Lines
84626
84660
Paul Smith
Temp quarters for employee during
$2,600.00 move
$3,692.72
$3,692.72
$2,600.00
$21,642.00 Move household goods for employee $21,642.00
$364.00
Reimburse employee for meals while
in temporary lodging at Oak Park
Apts
Total for Employee
©2016 The Payroll Advisor
Payment
Amount
$364.00
$31,991.44
Does the Move Qualify?
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The company relocated Paul from City A to City B
this year and paid for the move.
He moved in February and still lived in City B at
year’s end—Time Test is Passed
Paul’s commute from his old home to his old job in
City A was 21 miles. City B is located 425 miles from
his old home—Distance Test is Passed
©2016 The Payroll Advisor
And the Taxation Answer is…
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United Van Lines to move household goods from City A to City
B $21,642 Nontaxable and non-reportable
American Airlines to fly Paul and his family members from City
A to City B one way one time $3,692.72 Nontaxable and nonreportable
American Airlines to fly Paul home to City A while family was
still living in old home $3692.72 Taxable payroll needs
Oak Park Apartments for temporary quarters for Paul while his
family remained in City A and prepared for the move $2,600
Taxable payroll needs
Paul to reimburse him for meals while staying at Oak Park
Apartments $364 Taxable payroll needs
©2016 The Payroll Advisor
Payroll Would Handle As…
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Add $6656.72 as taxable income to Paul’s gross wages
in April and withhold FIT, FICA and all state
applicable taxes.
The payment to United Van Lines is ignored as
nontaxable and non-reportable
The Payment to American Airlines for the one time
family flight is ignored as it is nontaxable and nonreportable
Nothing is added to Box 12 Code P
©2016 The Payroll Advisor
Per Diems
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Employer may reimburse employee for travel days,
miles or some other fixed allowance if it does not
exceed the rates established by the Federal
Government
Per diem rates for meals and lodging are published
on the General Services Administration website
www.gsa.gov
Mileage is 54 cents per mile for 2016
©2016 The Payroll Advisor
Per Diem and Taxes
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Per diem payments are not part
of an employee’s wages if:
 the payment is equal to or less
than the federal per diem rate
AND
 the employer receives an
expense report from the
employee
©2016 The Payroll Advisor
Per Diems
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The excess subject to FIT,
FICA and FUTA
Substantiated amounts
goes in box 12 Form W-2
using code L
©2016 The Payroll Advisor
Per Diem and Taxes
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Expenses report must
include:
 Business purpose of the
trip
 Date and place of trip
 Receipts for lodging if
using meals-only per diem
©2016 The Payroll Advisor
Mileage Per Diems
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The trip must be
substantiated for the
business purpose and
number of miles if
reimbursing for mileage
If the per diem paid
exceeds the limits the
excess is reported as wages
©2016 The Payroll Advisor
Accountable Plan
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The following three rules must be met:
1.
The employee must incur or be paid for deductible
expenses while performing services as an employee
2.
The expenses must be substantiated within a
reasonable amount of time
3.
The employee must return any amounts in excess of
the substantiation within a reasonable amount of
time
©2016 The Payroll Advisor
Accountable Plan
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Amounts paid under an
accountable plan are not
wages for:
 Federal income tax
 Social security tax
 Medicare tax
 Additional Medicare tax
 Federal Unemployment
Insurance
©2016 The Payroll Advisor
Reasonable Amount of Time
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Depends on the facts and circumstances for each
payment but generally the time frame is reasonable if:
1.
The employee receives the advance within 30 days
of the time they incur the expenses
2.
Adequately account for the expenses within 60 days
after the expenses are paid or incurred
3.
Return any excess of expenses within 120 days after
the expenses are paid or incurred
©2016 The Payroll Advisor
Nonaccountable Plan
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Payments made to employees
for travel and other necessary
expenses for the employer’s
business under a
nonaccountable plan are
wages
Subject to FIT, FICA and FUTA
©2016 The Payroll Advisor
When Does Payroll Become Involved?
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Every time a payment under a nonaccountable plan is
made through accounts payable to reimburse an
employee for expenses payroll is involved
Every time a payment is made through AP and
exceeds the per diem limits payroll is involved
If the payment is made through AP under an
accountable plan and does not exceed the IRS limits
payroll is not involved
©2016 The Payroll Advisor
Auto Reimbursements
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Falls under Per Diems or Accountable
Plans
2016 per diem rate:
 is

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54 cents per mile
Must have a log
Must list all requirements
 Nature
of trip
 Actual Mileage

Auto allowances fall under same rule
©2016 The Payroll Advisor
Business Use Personal Vehicle—Example
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John Levy on sales staff
Gets $500 per month on 15th of each month
In July he submits his auto log for the month of June
For all his sales calls, John logged 1,268.80 miles.
Using the 2016 IRS standard mileage rate of 54 cents,
his calculation would be done as follows:
1,268.80 x $.54 = $685.15
Since $685.15 exceeds the $500 payment, nothing needs
to be reported to payroll.
©2016 The Payroll Advisor
Business Use Personal Vehicle—2nd
Example
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Joe Bumble on sales staff
Gets $500 per month on 15th of month
In July he also submits June auto log
Total mileage for his log is only 322.60 miles
322.6 x $.54 = $174.20 < $500
Difference taxable to employee
A/P must submit $325.80 ($500.00 – $174.20) to the
payroll department as taxable income for July
Or employee must return the excess to accounts
payable
©2016 The Payroll Advisor
Example 3: Totally Taxable
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Acme does not require its sales staff to submit logs
or any backup for the auto allowance that is paid
each month
That is a nonaccountable plan under IRS rules—no
paperwork
Therefore the entire $500 per each sales staff
member is taxable income for that month and must
be reported to payroll
©2016 The Payroll Advisor
Personal Use of a Company Vehicle
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Fully taxable
Vehicle may qualify as
nontaxable
4 methods of determining
taxation
 General
Valuation
 Annual Lease Value
 Cents per mile
 Commuting
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©2016 The Payroll Advisor
What Payroll Needs is the Fuel
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General valuation—all use is taxable but need to
add fuel provided
Annual Lease Value—maintenance is included but
need to add fuel provided
Cents per mile method—may deduct 5.5 cents per
mile if fuel is NOT provided
Commuting does not need info on fuel
May use actual fuel reimbursements or 5.5 cents
per mile
©2016 The Payroll Advisor
Employee Achievement Awards
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Length of Service and Safety
only
Tangible personal property
Not disguised compensation
Meaningful presentation
No more than specific dollar
amounts
 $1600
qualified plan
 $400 nonqualified plan
©2016 The Payroll Advisor
Length of Service Award
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Will qualify only if either of the
following apply:
 The employee receives the award
after his or her first 5 years of
employment
 The employee did not receive
another length-of-service award
(other than de minimis) during
the same year or in any of the
prior 4 years
©2016 The Payroll Advisor
Safety Awards
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Qualifies unless one of the following
applies:
 Given to a manager, administrator,
clerical employee or other
professional employee
 During the tax year, more than
10% of your employees have
already received a safety
achievement award (not counting
de minimis)
©2016 The Payroll Advisor
Bonuses, Prizes and Awards
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Cash is taxable!
So are all other types of payments
Trips, tangible personal property or
whatever!
Doesn’t matter what it is-if given as a
prize, bonus or award it is taxable
income
Applies to referral awards as well as
employee suggestion
©2016 The Payroll Advisor
Bonuses, Prizes and Awards
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Doesn’t mater what you call the
award
Doesn’t matter who pays for it
or if it is donated by a vendor
Doesn’t matter if the company
got it for free using bonus
points or frequent flyer miles
©2016 The Payroll Advisor
Holiday Gifts/Gift Certificates, Cards
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Can be De Minimis
Cash or cash equivalent is
taxable
 This
includes gift certificates to
supermarkets!

Turkey rule applies
 Turkey,
ham or similar item of
nominal value at holiday time.
 Must be for the actual turkey not
to store
©2016 The Payroll Advisor
Company Supplied Cell Phones
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Provided for noncompensatory
reasons—must have substantial
business reason to have phone
Excluded as working condition
fringe benefit
Personal use excluded from income
as de minimis fringe benefit
©2016 The Payroll Advisor
Non-compensatory Business Purposes
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Need to contact the employee at all times for workrelated emergencies,
Requirement that the employee be available to
speak with clients at times when the employee is
away from the office, and
Need to speak with clients located in other time
zones at times outside the employee's normal
workday.
©2016 The Payroll Advisor
Non-compensatory Business Purposes
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You cannot exclude from an
employee's wages the value of a cell
phone provided to promote good
will of an employee, to attract a
prospective employee, or as a means
of providing additional
compensation to an employee.
©2016 The Payroll Advisor
Reimbursement for Personal Cell Phones
Used for Business
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Employer requires employee
maintain and use personal
phone for work
Must have substantial
business reason to do so
Same definitions as before
©2016 The Payroll Advisor
Reimbursement for Personal Cell Phones
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Employee must maintain cell phone coverage that is
reasonably related to the needs of the employer’s
business
Reimbursement must be reasonably calculated so as to
not exceed actual expenses the employee incurs
Must not be a substitute for a portion of the employee’s
wages
Employee’s basic coverage plan charges a flat-rate per
month for a certain number of minutes for domestic calls
Employer reimburses employee for the monthly basic
plan expense to enable employee to maintain contact
with business clients after hours
©2016 The Payroll Advisor
Section 129 Plans
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

Dependent care plans
Up to $5,000
 Exempt
from FICA and FUTA
 Not subject to federal income
tax


Can be provided in kind or as
cash payment
Must be reported on Form W-2
therefore payroll must have info
©2016 The Payroll Advisor
Educational Assistance
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Must have an educational assistance program
Graduate as well as undergraduate
Includes cost of books, equipment, fees, supplies
and tuition
Does not include cost of tools or supplies employee
is allowed to keep
Does not include lodging, meals or transportation—
even on internet courses
Limit of $5,250 per year
©2016 The Payroll Advisor
Memberships
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Effective 1994, § 274(a)(3) provides that no
deduction is permitted for club dues.
This includes all types of clubs, including social,
athletic, sporting, luncheon clubs, airline and hotel
clubs and “business” clubs for all amounts paid or
incurred after 1993.
Regulations § 1.274-2(a)(2)(iii) and (e)(3) (ii)(b)
clarifies that the purposes and activities of a club,
and not its name, determine whether it is covered
under the disallowance provision.
©2016 The Payroll Advisor
Medical Expenses
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Depends on the type of plan that is set up by the
employer
Health Savings accounts; Health Reimbursement
Arrangements; Archer Medical Savings Accounts
In general nontaxable to the employee if within the
limits for HSAs or MSA
HRA have no limits on reimbursements
Optional or no reporting on Form W-2 Code DD
©2016 The Payroll Advisor
Life Insurance Other Than Group Term
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Whole life: Taxation depends on who is
designated as the beneficiary
Split-Dollar Life Insurance: Taxation depends on
the relationship between the owner and nonowner
©2016 The Payroll Advisor
Lodging
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Furnished on
business
premises
Furnished for the
employer’s
convenience
©2016 The Payroll Advisor
Employee must
accept as a
condition of
employment
Lodging
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Any type of “lodging” provided is usually taxable if
other than one discussed on previous slide
Includes vacation homes, corporate “housing”,
condos, boats in vacation places etc. especially for
executives
©2016 The Payroll Advisor
Stipends
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
A stipend is defined as a fixed sum of money paid
periodically for services or to defray expenses. The
fact that remuneration is termed a "fee" or "stipend"
rather than salary or wages is immaterial.
The income from stipends is reportable
All payments received for past, present, or future
services must be included in income.
©2016 The Payroll Advisor
Are There Any Questions?
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©2016 The Payroll Advisor
How Can Ascentis Help Me?
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Ascentis Payroll provides great flexibility for
processing many types of payments that your AP
department might now be responsible for. There
are options for handling the following:
• All types of expense reimbursements and non-taxable
payments, either along with the employee’s regular check
or as a stand alone check
• Entering wages and taxes for W-2 purposes for a net
check paid through AP rather than payroll
• All types of imputed income type benefits (fringe benefits,
gift cards, etc.)
• Non-cash, non-taxable employee payments that should
be included in Box 12 of the W-2
To earn RCH credit you must
64
Stay on the
webinar, online for
the full 60 minutes
Be watching using
your unique URL
Certificates
delivered by email,
to registered email,
by November 25th
©2016 The Payroll Advisor
On-Demand Webinars
65
Watch from anywhere, at anytime, at no cost
to you!
©2016 The Payroll Advisor
Download Slides? Watch again?
66
©2016 The Payroll Advisor
Sharing the Education
67
©2016 The Payroll Advisor
Contact Us
68
[email protected]
www.ascentis.com
800.229.2713
©2016 The Payroll Advisor