Tax-Law Changes to Influence Payroll Administration in 2016

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By Michael Baer

A plan under development by the Internal Revenue Service would give some small businesses a research credit of up to $250,000 against their employer Social Security tax liability in 2016, an IRS official said.

Implementation of the credit is among several employment tax provisions enacted under the Protecting Americans From Tax Hikes (PATH) Act of 2015 (Division Q of Pub. L. 114-113), which was signed Dec. 18 by President Barack Obama.

Janine Cook, deputy associate chief counsel for Tax Exempt and Government Entities in the IRS Office of Chief Counsel, reviewed changes to be implemented by this law and other initiatives at a Jan. 29 session of the American Bar Association Section of Taxation midyear conference in Los Angeles.

Under the permanent extension of the research tax credit, Cook said the law now allows qualified small employers to apply their 6.2 percent Social Security contributions, up to a limit, toward the research tax credit. While these employers would not receive the credit until filing corporate tax returns in 2017, the IRS has “a lot to do to get ready for it,” Cook said.

There is precedent for providing cash to employers through payroll tax credits, Cook said. Payroll taxes were used to pay for the Consolidated Omnibus Budget Reconciliation Act (COBRA) subsidy implementation, a temporary economic stimulus initiative passed in 2009.

Using payroll taxes to more quickly provide employers with credit amounts in 2016 would likely be similar to the earlier law, Cook said. However, there are many questions to be answered as the IRS builds the process to account for the credits and the amount of payroll taxes paid, as well as other processes necessary to implement the provision, Cook said.

The new Jan. 31 filing date that employers have been given for filing Forms W-2, Wage and Tax Statement, with the Social Security Administration has generated “a lot of attention,” Cook said, noting that the due date does not apply to the 2015 forms.

Additionally, there has been some misinterpretation of a provision that allows the IRS to no longer require Social Security numbers on W-2s, Cook said. The new law allows the IRS to make such a change, but it would not take effect until the agency has released guidance, she said.

Separately, Cook commented on Announcement 2016-2, which generally allows employers that provide identity theft protection to exclude the cost of the services from employees' gross income and wages regardless of whether a data breach occurred.

The provision does not apply to cash received in lieu of identity-protection services or to proceeds received under an identity-theft insurance policy, the IRS said.

Additionally, employers do not have to report the amounts on an information return, the agency said.

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To contact the editor responsible for this story: Michael Trimarchi at

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