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Marianna Dyson practices in the areas of payroll tax, fringe benefits, and information reporting, with a specific focus on perquisites provided to employees and directors, worker classification, tip reporting, cross-border compensation, backup withholding, information reporting, and penalty abatement.

Ms. Dyson advises large employers on the application of employment taxes, the special FICA tax timing rules for nonqualified deferred compensation, the voluntary correction of employment tax errors, and the abatement of late deposit and information reporting penalties for reasonable cause. On behalf of the restaurant industry, her practice provides extensive experience with tip reporting, service charges, tip agreements, and Section 45B tax credits.

She is a frequent speaker at Tax Executives Institute (TEI), the Southern Federal Tax Institute, and the National Restaurant Association.

As previewed by the recent final Form W-4 regulations published in October (see earlier coverage), the IRS released a draft of Publication 15-T (Federal Income Tax Withholding Methods) on November 17.  The publication provides a new computational method for employers who must continue to rely on pre-2020 Forms W-4 to determine the amount of

On October 6, the IRS published final regulations addressing changes made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) to how an employee instructs an employer to withhold income taxes based on the employee’s Form W-4 (Employee’s Withholding Certificate).  These final regulations were issued only 8 months after the proposed regulations were published (see earlier coverage), which is considered warp-speed in IRS time. The Preamble to the final regulations provide a new method for employers who must continue to rely on pre-2020 Forms W-4 to determine the amount of federal income tax to withhold from employee’s wages.
Continue Reading Preamble to Final Regulations on the Mechanics of Income Tax Withholding Provide Transition Method for Pre-2020 Forms W-4

On Friday, October 30, the IRS provided guidance regarding the proper reporting on Form W-2 for employers who deferred the withholding of the employee share of Social Security tax under Notice 2020-65. (See earlier coverage.)  Based on the IRS guidance, employers should report FICA wages up to the OASDI (Social Security) wage base in Box 3 of the 2020 Form W-2.  Only the amount of Social Security tax actually withheld during 2020 should be reported in Box 4 of the form.

In 2021, if the employer withholds the 2020 deferred Social Security taxes, the employer must file a Form W-2c for 2020 reporting the additional withholding in Box 4.  Although the IRS guidance does not address this, if the employer pays in 2021 the employee’s share of Social Security taxes that were deferred in 2020, the employer must still file a Form W-2c reporting the amount as withheld Social Security taxes in Box 4.  Moreover, the employer would also be required to include the amount of taxes paid by the employer on the employee’s behalf as additional wages in Boxes 1, 3 (up to the OASDI wage base), and 5 on the employee’s 2021 Form W-2.  Because the employer’s payment of the employee’s deferred tax constitutes additional wages to the employee in 2021, these amounts will need to be grossed up to account for employment taxes on the amount of the employee’s tax paid by the employer if those taxes are not withheld from the employee’s other 2021 wages.
Continue Reading IRS Provides Guidance on Preparation of Forms W-2 for Employees with Deferred Social Security Tax Withholding

On Monday, October 19, the State of New Hampshire filed a bill of complaint in the Supreme Court of the United States asserting that its southern neighbor, Massachusetts, is violating its state sovereignty.  The suit attacks Massachusetts’s emergency regulations governing the taxation of income during the COVID-19 state of emergency. Massachusetts enacted a rule pursuant to which income earned by a nonresident of Massachusetts who worked in Massachusetts prior to the pandemic but who is working from home outside of the state remains Massachusetts-source income subject to Massachusetts income tax.  Accordingly, employers would be required to continue to withhold Massachusetts income tax on wages paid to those individuals even though the individuals are no longer working in Massachusetts.  Although the Massachusetts guidance is among the most sophisticated and detailed withholding guidance issued by the states during the pandemic, it is not alone in taking this approach.  Rhode Island issued regulations substantially similar to Massachusetts, and the Pennsylvania Department of Revenue has issued similar guidance in the form of FAQs posted on its website.  Other states have hinted at taking a similar approach, but the guidance is often vague and left open to interpretation.
Continue Reading New Hampshire Brings COVID-19 Tax Dispute to Supreme Court; Case Highlights Challenges Facing Employers and Employees

On October 9, the IRS published final Treasury Regulations addressing the deduction disallowance of expenses associated with providing entertainment, business meals, and other food and beverages in the Federal Register.  The final regulations, which track the proposed regulations published on February 26, 2020, preserve, with certain limitations, taxpayers’ ability to deduct 50 percent of the cost of business meals, even though the Tax Cuts and Jobs Act (“TCJA”) repealed the directly related and business discussion exceptions to the general prohibition on deducting entertainment expenditures.  Treasury Regulation § 1.274-11 addresses the deduction disallowance under Section 274(a)(1) for entertainment costs.  Treasury Regulation § 1.274-12 addresses the limitations on food or beverage expenses under Sections 274(k) and (n), including the application of exceptions in Section 274(e).

The TCJA’s elimination of a taxpayer’s ability to deduct 50 percent of meal and entertainment expenses meeting the directly related and business discussion exceptions took effect for tax years beginning after December 31, 2017.  In 2018, IRS Notice 2018-76 provided transitional guidance on the deductibility of expenses for certain business meals and other food and beverage expenses under Section 274(a)(1).  The proposed regulations largely adopted the guidance provided in Notice 2018-76, while also providing some significant updates.  The final regulations made only a few substantive changes to the proposed regulations.


Continue Reading Final Regulations Address TCJA Disallowance for Meal and Entertainment Expenses

On July 30, 2020, the IRS released guidance in the form of new frequently asked questions (“FAQs”)  addressing the deferral of the employer portion of Social Security taxes under section 2302 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.  These FAQs are broad in nature, providing guidance on various considerations relevant to section 2302 of the CARES Act, including application of these rules to first calendar quarter deposits, coordination with the next-day deposit rule, and considerations for employers that use third parties to report and deposit employment taxes with the Treasury.  Covington continues to review this guidance, and has summarized in this blog post some of the provisions we consider most relevant to employers.

When reviewing this latest guidance from the IRS, employers should be mindful that although they represent the current thinking of the IRS regarding section 2302, these FAQs are  non-binding; the IRS is under no obligation to comply with these FAQs and could therefore take a different approach at any time.  As we have noted previously, the IRS has changed course with respect to FAQs issued in connection with other provisions in the CARES Act, such as the employee retention credit.
Continue Reading IRS Releases Additional FAQs on Deferral of Employment Tax Deposits Under Section 2302 of the CARES Act

On Saturday, August 8, President Trump signed a Presidential Memorandum directing the Secretary of the Treasury to “use his authority pursuant to [Code section] 7508A to defer the withholding, deposit, and payment of the tax imposed by [Code section] 3101(a) . . . on wages . . . paid during the period of September 1, 2020, through December 31, 2020,” subject to certain conditions.  (The memo as originally posted on the White House website would have applied retroactively to wages paid August 1, 2020, but was subsequently updated.)  Two conditions are enumerated in the memorandum.  First, the deferral applies only with respect to any employee the amount of whose wages payable “during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.”  Second, the amounts deferred shall be deferred without any penalties, interest, additional amount, or addition to the tax.
Continue Reading Trump Executive Action to Defer Employee Share of Social Security Taxes Raises Significant Legal Questions for Employers

On July 27, 2020, the IRS published Information Release 2020-169 announcing the issuance of new temporary and proposed regulations to implement procedures to assess, reconcile, and recapture any portion of the credits under the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) erroneously credited, paid, or refunded in excess of the actual amount allowed.
Continue Reading Recapture of Excess COVID-19 Payroll Tax Credits Addressed in New Regs

On July 27, Senate Republicans introduced a series of bills intended as their opening salvo in what appears likely to be contentious negotiations among Senate Republicans, the White House, and House and Senate Democrats over the next legislative response to the COVID-19 pandemic.  Along with another round of direct stimulus payments to individual taxpayers, extended

On Friday, June 19, the IRS updated several FAQs on its website related to the Employee Retention Credit adopted as part of the Coronavirus Relief, Aid, and Economic Security (“CARES”) Act.  The updated FAQs provide additional insight into the IRS’s current thinking regarding employer eligibility for and determination of the credit.  Unfortunately, the updated FAQs still leave significant uncertainty regarding the eligibility of some employers, many of whom will be making a determination of their eligibility before filing their Forms 941, Employer’s Quarterly Federal Tax Return, for the second quarter in July.
Continue Reading IRS Updates FAQs on Employee Retention Credit Enacted as Part of CARES Act