Some may be based upon services of a continuing nature or services that are frequently recurring; and some constitutes prepaid income. Accordingly, different rules for allocating income to Pennsylvania sources may apply. The PA Schedule C reporting the income not reported as compensation (and all its related expenses) should have all the lines completed at the top of the schedule (Lines A through I and 1 through 5).

For example, if a taxpayer received a distribution from an IRA after retirement, death, disability, separation from service unforeseeable emergency or attaining the age of 59½ and a penalty is not paid, the distribution is not included in the taxpayer’s compensation. Amounts paid exclusively to provide reasonable compensation for future services such as a covenant not to compete, however, cannot be allocated on a working days basis unless and until all services fixing the right to retain the payment have occurred. Accordingly, if the evidence shows that substantially all of the future services would have been performed in PA, then the prepayments are allocable to Pennsylvania. Otherwise, such amounts may be allocated only to the employee, director or officer place of residence at the time of payment. Pennsylvania personal income tax, unlike the Internal Revenue Code, does not contain provisions that distinguish between or among various types of stock options.

Federal and Pennsylvania Personal Income Tax Differences Relating to Stock Options

For purposes of determining when deferred compensation of employees of exempt organizations and State and local governments is required to be included in income, the rules of sections 83, 409A, 451 and 457 of the Internal Revenue Code apply. As mentioned above, damage awards received for personal injury or sickness are not taxable for Pennsylvania personal income tax. Damage award for lost profits or lost capital are taxable for Pennsylvania personal income tax. If a claim was brought under either Title VII of the Civil Rights Act of 1964 or the ADEA, the amounts received are meant to restore the worker to the wage and employment position that the worker would have occupied prior to the unlawful discrimination. Consequently, the sums received from former employers are considered a form of back wages and are taxable as compensation under Pennsylvania’s Tax Reform Code.

Substantial business benefits include promoting a positive business image, maintaining employee morale, and avoiding wrongful termination suits. Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount isn’t more than $2,000. For this rule and the first exception discussed next, count employees who choose not to receive the insurance as if they do receive insurance, unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. However, don’t count an employee who chooses not to receive insurance if the employee must pay part or all of the cost of permanent benefits in order to obtain group-term life insurance.

Unreimbursed Employee Expenses on PA-40 Schedule UE, Allowable Employee Business Expenses

Don’t post your SSN or other confidential information on social media sites. The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure online W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2 and Form W-2c, Corrected Wage and Tax Statement. Go to IRS.gov/Coronavirus for links Qualified Transportation Fringe Benefit And Loss Of Deduction Under Tax Reform to information on the impact of the coronavirus, as well as tax relief available for individuals and families, small and large businesses, and tax-exempt organizations. On IRS.gov, you can get up-to-date information on current events and changes in tax law.. Go to IRS.gov/EmploymentEfile for more information on filing your employment tax returns electronically.

Employers should review the IRS guidance and determine a reasonable method for calculating parking expenses. Employers should consider reviewing their payroll systems and consulting with their payroll vendors to ensure proper coding of QTF benefit amounts and that payroll accurately reflects the tax treatment of these deductions. If you received an annuity contract as part of a distribution, the value of the contract is shown. It is not taxable when you receive it and should not be included in Boxes 1 and 2a. When you receive periodic payments from the annuity contract, they are taxable at that time.

Pennsylvania Taxable Benefits

Fees, commissions, rewards, golden parachute payments, damage awards, termination payments, fringe benefits or other items of non-employee compensation reported on federal Form 1099–MISC are taxable as compensation. If the income not reported on a W-2 is elected to be reported as business income, the expenses must be reported on a pro-rata basis between the PA Schedule UE (usually on a PA Schedule C) and on a separate PA Schedule C that reports the income not included on the W-2. If the income and expenses for each are not determined using separate accounting, the expenses may be allocated based upon the percentage of the income for each method of income reported to the taxpayer to the total income. In such cases, all expenses included on a federal Schedule C must be allocated between the two reporting methods. If an expense is a nonallowable for PA Schedule UE purposes, it must still be allocated to that portion of the income.

• For this rule, a vehicle is any motorized wheeled vehicle (including an automobile) manufactured primarily for use on public streets, roads, and highways.
• Before the TCJA, employees could deduct their unreimbursed work-related expenses as miscellaneous itemized deductions, subject to the 2 percent adjusted gross income limit.
• Refer to Supreme Court Decision in
  United States v. Burke, 112 S.Ct.
• The amount may have been a direct rollover, a transfer, or conversion to a Roth IRA, a recharacterized IRA contribution; or you may have received it as periodic payments, as non-periodic payments, or as a total distribution.
• 565, 397 A2d 1288 (1979), profit-sharing plans are taxable as Pennsylvania compensation.
• No contributions can be made to an individual’s HSA after he or she becomes enrolled in Medicare Part A or Part B.

You can’t exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program don’t favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Payments that are rolled over into another IRA or into a qualifying old age or retirement benefit program where the transferred amounts are not includable in income for federal income tax purposes. Distributions from nonqualified deferred compensation plans attributable to elective deferrals and earnings thereon are taxable at the time of the distributions irrespective of retirement. For purposes of determining when deferred compensation of employees (other than employees of exempt organizations and State and local governments) is required to be included in income, the rules of sections 83, 409A and 451 of the Internal Revenue Code apply.

The IRS Video portal (IRSVideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals. If you reimburse an employee for the cost of fuel, or have it charged to you, you generally value the fuel at the amount you reimburse, or the amount charged to you if it was bought at arm’s length. For an automobile you lease, you can use any of the following as the safe-harbor value. A control employee for a government employer for 2023 is either of the following.

• Parking expenses allocable to these unusable spaces are excluded from the total parking expenses used under any of the methodologies outlined to calculate the deduction disallowed in connection with QTF.
• Pennsylvania, like many other states, follows the
  “convenience-of-the-employer” doctrine.
• Therefore, it will not be easy for certain employers to simply discontinue transportation fringe programs in order to avoid UBTI.
• Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees’ wages.
• The old rules for annuities are explained in
  PA Personal Income Tax Guide – Interest and
  PA Personal Income Tax Guide – Net Gains (Losses) From the Sale, Exchange or Disposition of Property.
• Likewise, if the congregation pays the costs of housing directly and not as a reimbursement to the clergy, the direct costs are not taxable.

Determine this amount on the basis of all the facts and circumstances. The program must also not be limited to only certain classes of employees (such as highly compensated employees), unless you can show a business reason for providing the products only to specific employees. For example, an automobile manufacturer may limit providing automobiles for testing and evaluation to only their design engineers and supervisory mechanics, as they can properly evaluate the automobiles. If the value of a benefit for any month is more than its limit, include in the employee’s wages the amount over the limit minus any amount the employee paid for the benefit.

Eligible employers who pay at least 50 percent of an employee’s regular wages during the leave can claim a credit of 12.5 percent of the wages paid for up to 12 weeks of family and medical leave per year. The credit is increased by 0.25 percentage points, up to a maximum of 25 percent, for each percentage https://kelleysbookkeeping.com/understanding-your-irs-notice-or-letter/ point by which the rate of payment exceeds 50 percent. The report advised that the use of a qualified salary reduction plan by employees to purchase qualified transportation benefits will result in the employer not being allowed to deduct the portion of the employee salary used for this purpose.

But tax exempt organizations should note that under the proposed regulations, deductions for QTF expenses will be disallowed if the QTF expenses are directly connected with an unrelated trade or business conducted by the organization. Outplacement services don’t qualify as a working condition benefit if the employee can choose to receive cash or taxable benefits in place of the services. If you maintain a severance plan and permit employees to get outplacement services with reduced severance pay, include in the employee’s wages the difference between the unreduced severance and the reduced severance payments. You can’t exclude a qualified transportation benefit you provide to an employee under the de minimis or working condition benefit rules. However, if you provide a local transportation benefit other than by transit pass or commuter highway vehicle, or to a person other than an employee, you may be able to exclude all or part of the benefit under other fringe benefit rules (de minimis, working condition, etc.).

You can choose not to withhold income tax on the value of an employee’s personal use of a highway motor vehicle you provided. You can withhold income tax from the wages of some employees but not others. You must, however, withhold the applicable social security and Medicare taxes on such benefits. This section discusses the rules you must use to determine the value of a fringe benefit you provide to an employee. You must determine the value of any benefit you can’t exclude under the rules in section 2 or for which the amount you can exclude is limited.

• If you are a Pennsylvania resident working in one of these states and your employer withheld the other state’s income tax, you must file for a refund from that state.
• You can withhold income tax from the wages of some employees but not others.
• Figure the annual lease value for each later 4-year period by determining the FMV of the automobile on January 1 of the first year of the later 4-year period and selecting the amount in column (2) of the table that corresponds to the appropriate dollar range in column (1).