The IRS has issued the 2020 version of Publication 15-B (Employer’s Tax Guide to Fringe Benefits).
The “What’s New” section of the publication includes information on the 2020 business mileage rate under the “cents-per-mile rule” (see Business Mileage Rate Decreasing in 2020, 1/02/2020), the monthly exclusion for qualified parking and commuter transportation benefits (see Payroll Guide ¶ 3585 and Payroll Guide ¶ 3590), the contribution limit on a health flexible spending arrangement (FSA) (see Payroll Guide ¶ 3510), and new Form 1099-NEC to report nonemployee compensation paid in 2020 (see Payroll Guide ¶4271).
There is a table on page 6 of the publication that summarizes the differences in the treatment of various fringe benefits for federal income tax withholding (FITW), Social Security and Medicare (FICA), and federal unemployment tax (FUTA) purposes. For example, payments from an employer’s adoption assistance plan that meet certain requirements are not subject to FITW. However, the payments are subject to FICA and FUTA tax.
The publication includes the following reminders about changes to the tax law as a result of the enactment of H.R. 1, the Tax Cuts and Jobs Act (TCJA).
Supplemental wage withholding rate. The supplemental wage withholding rates have decreased under the TCJA. The optional flat withholding rate for supplemental wage payments of $1 million or less (bonuses, commissions, etc.) is 22% from 2018-2025. In addition, the mandatory withholding rate on supplemental wage payments during the year that total over $1 million is 37% from 2018-2025. See Payroll Guide ¶ 4101 and Payroll Guide ¶ 4102 for further information on these rates.
Moving expense reimbursements. The exclusion from an employee’s income for qualified moving expense reimbursements is suspended for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, except for reimbursements to U.S. Armed Forces members on active duty who move because of a permanent change of station (see Payroll Guide ¶3750).
Qualified bicycle commuting reimbursements. A provision in the TCJA suspended the exclusion for qualified bicycle commuting reimbursements from an employee’s income for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026. Previously, employers could exclude up to $20 per month in reimbursements to an employee for bicycle commuting costs (see Payroll Guide ¶ 3585).
Additional permitted election changes for health coverage under a cafeteria plan. Two situations in which a cafeteria plan participant is permitted to revoke his or her health coverage election under a cafeteria plan during a period of coverage.
Employers must generally determine the value of noncash fringe benefits no later than January 31 of the next year. Before January 31, employers may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Employers may be subject to a penalty if they underestimate the value of the fringe benefits and deposit less than the amount that they would have had to deposit if the applicable taxes had been withheld. If employers overestimate the value of the fringe benefit and over deposit, they may either claim a refund or have the overpayment applied to their next Form 941.
IRS Publication 15-B supplements IRS Publication 15, (Circular E) (Employer’s Tax Guide), and IRS Publication 15-A (Employer’s Supplemental Tax Guide) .
For further information on the taxation of fringe benefits, see Payroll Guide ¶ 3540.