We can safely say that the employers that The Payroll Department works with want to do the best they can for their employees. Of course, they have to balance fiscal responsibility with their own personal interest in providing benefits and health care to their employees.
One area we are seeing come up as a benefit more often is Adoption Assistance. More couples are adopting children and more employers are offering assistance. Of course, there are rules dictated by the federal tax code for adoption assistance programs.
In setting up an Adoption Assistance program, business leadership has to conform to the rules regarding highly compensated employees, shareholders and employee eligibility standards.
Given that all that criteria is met and a plan approved, benefits are often handled through payroll and definitely the tax consequences affect the payroll taxes.
Employment Tax Treatment
This fringe benefit is one that is not handled the same across the tax board.
Income Tax Withholding: Adoption assistance is exempt from income tax withholding. Employers must report all qualifying adoption expenses paid or reimbursed under the employer’s program on the Form W-2.
Social Security and Medicare: Adoption Assistance received by employees is not exempt from Social Security and Medicare payments. This includes Addition Medicare Tax when wages are paid in excess of $200,000.
Federal Unemployment (FUTA): The federal unemployment tax is also incurred including the adoption assistance benefits. Just like the employee’s wages, adoption assistance payments are not exempt.
Any employer who provides this fringe benefit must be sure that payroll services handle the payroll taxes, reporting, deposits and year end reporting accurately.
Count on a payroll provider with experience to be sure. The Payroll Department has got your covered! Special fringe benefits are a way to support your workers. It might require special knowledge from your payroll provider and accounting services, but can help you get and retain the best workers, too.
-Elaine of The Payroll Department Blog Team