I’ve been writing a lot about Section 162(m) lately and it’s certainly a big tax update for most public corporations this year. For today’s blog entry, however, I have a few year-end tax updates that don’t relate to Section 162(m).
Per the SSA’s announcement, the maximum amount of earnings subject to Social Security tax will increase to $132,900 in 2019 (up from $128,400 in 2018). The Social Security tax withholding rate will remain at 6.2%. With the new wage cap, the maximum withholding for Social Security will be $8,239.80.
Medicare tax rates also remain the same and are not subject to a maximum (the threshold at which the additional Medicare tax applies is likewise unchanged).
Thanks to Andrew Schwartz of Computershare for alerting me to the new Social Security wage base.
The IRS has a released a draft of the new Form 1040. In keeping with the GOP’s promise, the new form can fit on a postcard (well, a large postcard). This was accomplished in part by moving some information that was previously reported on the 1040 itself to schedules.
Bruce Brumberg of myStockOptions.com pointed out to me that it’s a little hard to tell where capital gains are supposed to be reported on the new Form 1040, so much so that employees might not realize that they have to report capital gains. The draft form calls for capital gains (and losses) to be reported on new Schedule 1 (a draft of which is also available), along with a host of other adjustments to income. All of these adjustments are aggregated together and reported on line 6 of the new Form 1040.
Failing to report sales of stock on their tax returns is one of the most common mistakes employees make with their stock compensation. If this draft version of Form 1040 becomes final, the risk that employees will make this mistake will be even higher.
Because forms 1099-B are filed with the IRS, the service generally knows about any sales and systematically checks to verify that the sales are reported on the taxpayer’s tax return. If employees forget to report their sales, it won’t take an audit for the IRS to figure it out; employees will almost certainly get a notice from the IRS indicating that there is a problem with their tax return (maybe not right away, but within a few years). Just something to warn employees about in your year-end communications to them.
Two years ago, the Protecting Americans from Tax Hikes Act moved up the deadline to file Forms W-2 and Forms 1099-MISC that report nonemployee compensation (such as income from stock plan transactions by consultants or nonemployee directors, which is included in box 7) to January 31 (see the NASPP Blog entry “Tax-Related Changes for 2017,” November 15, 2016). Forms 1099-MISC that don’t report nonemployee compensation, such as Forms 1099-MISC issued to an employee’s former spouse or estate to report income from stock plan transactions (which is reported in box 3), are not subject to the January 31 deadline; for 2018, those forms aren’t due until April 1, 2019 (February 28, 2019, if filed on paper). These deadlines aren’t new; they’ve been in effect since the 2016 tax year filings.
I mention them, however, because Marlene Zobayan of Rutlen Associates pointed out to me that the IRS has posted a notice on their website warning that if companies combine Forms 1099-MISC reporting nonemployee compensation with other Forms 1099-MISC in the same filing and submit it after January 31, the IRS will treat all of the forms as late (i.e., subject to penalty), even though only the forms that report nonemployee compensation are actually late (assuming the filing is submitted before April 1/February 28). Thus, if you have to file any Forms 1099-MISC reporting nonemployee compensation late, be sure to submit them in a separate filing from your other Forms 1099-MISC filings.