Tax Planning

Year End Planning for Employers

As an employer, year-end is a time to compile employee wage, withholding, benefit and deduction information on Form W-2. It is also the time to consider payroll issues for the following tax year.

Year End Preparations
Each employee must have a copy of 2001 Form W-2 no later than January 31, 2002. On this form, the employee's total yearly wage amounts, along with all withholding amounts and certain benefit and deduction amounts, will be reported. There are two types of deductions for federal tax purposes - pretax and post tax.

Pretax deductions will include items such as cafeteria plan deductions and qualified retirement plan deductions. Cafeteria plans can include group health and term life insurance premiums, dependent care assistance and flexible spending accounts for medical expenses and dependent care expenses. Cafeteria plan deductions are not subject to FICA withholdings. Qualified retirement plan deductions (401k or 403b) are pretax for federal purposes, but will be subject to FICA withholding.

Post tax deductions are voluntary deductions such as union dues, repayment of loans made to an employee by the employer, and non-profit donations. These deductions will be subject to federal withholding as well as FICA withholding.

Planning for Future Years
As well as complying with reporting issues, the end of the year is the time to consider establishing plans for employees to contribute to for the following year.

Many employees enjoy the tax benefit of contributing to cafeteria plans along with qualified retirement plans. In 2002, there will be an option to payroll deduct college savings amounts for a qualified state tuition plan (529 plan). Although this does not have an impact on current year taxable income, the earnings on these accounts grow tax deferred and the amounts withdrawn are taxed at the beneficiary's rate as long as they are used for qualified education expenses.

Please contact us if you are interested in making any of these plans available to your employees or have questions regarding your payroll issues.

For More Information Contact:

Bucheri McCarty & Metz LLP
2366 W. Boulevard
P.O. Box 2147
Kokomo, IN 46904-2147

Telephone: (765) 236-2300
FAX: (765) 236-2333
Internet: info@bmmcpas.com