My question centers on imputed income and the withholding/reporting requirements an employer may have in this realm. First the Facts:
Employee enrolls for family coverage to cover himself and his "wife." Later during the year, he informs the employer that he and his "wife" were never actually married but have lived together for some time. Prior to this time the employee was paying for family coverage on a pre tax basis. Under the IRC (3401) the fair market value of the coverage provided to the domestic partner must be included in the employee's gross income. The Regulations under Code Sec. 3401 are fairly clear in that imputed income from a health plan consistutes wages subject to withholding. Specifically, the imputed income is going to constitute supplemental wages. The amount of supplemental wages for the year is going to be well under $1 million. Now, I'm not sure how far this goes back, but for the purposes of this question, let's assume it was a one year thing.
My questions: Does the Employer have to report the imputed income to the Service (e.g., on Form W-2)? Is there any other affirmative action the employer must do? Secondly, if the Employer determines that amount that must be imputed into income and then, accordingly, determines the amount that must be withheld, does the Employer then begin withholding from the next paycheck? Can the withheld amount be prorated over remaining payrolls?
Finally, I'm going to post this question in a few areas that discuss Health and Welfare Plans because I'm new to this board (virgin post! ha) and I'm not sure which area gets the most traffic. I would really appreciate any insight someone can give.
My thinking is that the imputed income is reported on Form W-2 and the Employer begins withholding from the next paycheck and remits those withheld amounts. What I'm really not sure of is whether the amount should be withheld from one single paycheck or whether it can be spread out.
Up front I appreciate any responses I receive!
Full Version: Withholding on Supplemental Wages
QUOTE (MexDomer @ Jan 24 2008, 12:39 PM) 
My question centers on imputed income and the withholding/reporting requirements an employer may have in this realm. First the Facts:
Employee enrolls for family coverage to cover himself and his "wife." Later during the year, he informs the employer that he and his "wife" were never actually married but have lived together for some time. Prior to this time the employee was paying for family coverage on a pre tax basis. Under the IRC (3401) the fair market value of the coverage provided to the domestic partner must be included in the employee's gross income. The Regulations under Code Sec. 3401 are fairly clear in that imputed income from a health plan consistutes wages subject to withholding. Specifically, the imputed income is going to constitute supplemental wages. The amount of supplemental wages for the year is going to be well under $1 million. Now, I'm not sure how far this goes back, but for the purposes of this question, let's assume it was a one year thing.
My questions: Does the Employer have to report the imputed income to the Service (e.g., on Form W-2)? Is there any other affirmative action the employer must do? Secondly, if the Employer determines that amount that must be imputed into income and then, accordingly, determines the amount that must be withheld, does the Employer then begin withholding from the next paycheck? Can the withheld amount be prorated over remaining payrolls?
Finally, I'm going to post this question in a few areas that discuss Health and Welfare Plans because I'm new to this board (virgin post! ha) and I'm not sure which area gets the most traffic. I would really appreciate any insight someone can give.
My thinking is that the imputed income is reported on Form W-2 and the Employer begins withholding from the next paycheck and remits those withheld amounts. What I'm really not sure of is whether the amount should be withheld from one single paycheck or whether it can be spread out.
Up front I appreciate any responses I receive!
Employee enrolls for family coverage to cover himself and his "wife." Later during the year, he informs the employer that he and his "wife" were never actually married but have lived together for some time. Prior to this time the employee was paying for family coverage on a pre tax basis. Under the IRC (3401) the fair market value of the coverage provided to the domestic partner must be included in the employee's gross income. The Regulations under Code Sec. 3401 are fairly clear in that imputed income from a health plan consistutes wages subject to withholding. Specifically, the imputed income is going to constitute supplemental wages. The amount of supplemental wages for the year is going to be well under $1 million. Now, I'm not sure how far this goes back, but for the purposes of this question, let's assume it was a one year thing.
My questions: Does the Employer have to report the imputed income to the Service (e.g., on Form W-2)? Is there any other affirmative action the employer must do? Secondly, if the Employer determines that amount that must be imputed into income and then, accordingly, determines the amount that must be withheld, does the Employer then begin withholding from the next paycheck? Can the withheld amount be prorated over remaining payrolls?
Finally, I'm going to post this question in a few areas that discuss Health and Welfare Plans because I'm new to this board (virgin post! ha) and I'm not sure which area gets the most traffic. I would really appreciate any insight someone can give.
My thinking is that the imputed income is reported on Form W-2 and the Employer begins withholding from the next paycheck and remits those withheld amounts. What I'm really not sure of is whether the amount should be withheld from one single paycheck or whether it can be spread out.
Up front I appreciate any responses I receive!
I should also point out that this non-spouse's coverage has been terminated. Thus, I'm really wondering whether we have to go back and amend W-2s to include the imputed income. If so, what is subject to withholding.....his current wages? I'm not sure if that's what I have to do......however, there's a part of me that thinks we can ignore it (i.e., the past) and just drop her from coverage and not report imputed income or amend W-2s. I mean how would the Service find out about this? It's just annoying that an employer would have to go through all that work because a participant lied
Laking specific instructions or information in the regs about making these types of corrections, I've amended/corrected W-2s for respective years involved.
With respect to retroactive adjustments on withholdings on ineligible premiums I've limited corrections to two options. One is collecting directly from tax payer via a personal check. The second option is a limited 1 or 2 time payroll adjustment. I perfer the first option but have had circumstances when there was an ER or EE preference for the 2nd option.
Both should be well documented and provide a clean audit trail.
With respect to retroactive adjustments on withholdings on ineligible premiums I've limited corrections to two options. One is collecting directly from tax payer via a personal check. The second option is a limited 1 or 2 time payroll adjustment. I perfer the first option but have had circumstances when there was an ER or EE preference for the 2nd option.
Both should be well documented and provide a clean audit trail.
What about any imputed income for prior years?
Say in 2009 it was discovered that the "spouse" received health benefits in 2007 & 2008. How would the employer go about correcting the 2007 & 2008 taxes?
Say in 2009 it was discovered that the "spouse" received health benefits in 2007 & 2008. How would the employer go about correcting the 2007 & 2008 taxes?
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