The treasurer possesses statutory responsibility to pay all bills and to account for all monies belonging to a municipality. Consequently, the treasurer generally inherits the obligation to prepare municipal payrolls, a responsibility that entails maintaining payroll records and complying with federal, state and local reporting requirements. Although a different officer or department in some municipalities administers the payroll, this chapter is written from the perspective that the treasurer possesses this responsibility. In communities in which some other officer or department performs the payroll function, references to the treasurer in this chapter should be read to include the words, “or other officer in charge of payrolls for the municipality.”
For payroll administration purposes, the treasurer should be familiar with the following sections of the General Laws:
| 1. | Treasurer’s duties and bond requirements. | (41:35) | |
| 2. | Compensation for: | ||
| • | elected and appointed officials and all non-union, non-classified employees. | (41:108) | |
| • | classified appointed officials and employees. | (41:108A) | |
| • | union employees. | (150E:7) | |
| • | civil service employees (roster requirement). | (31:71) | |
| • | special detail or off-duty employees. (See also IGR 80-3, pp. 7-26 & 7-27.) |
(44:53C) | |
| • | disability income (police and fire in lieu of workmen’s compensation). |
(41:111F) | |
| • | worker’s compensation. | (152:69) | |
| • | wages due upon death. | (41:111I) | |
| • | vacation pay due upon retirement. | (41:111E) | |
| 3. | Payroll administration issues and requirements: | ||
| • | timeliness of payments and provisions for cashing checks. | (149:148) | |
| • | information required on payroll. | (41:42) | |
| • | oath to payroll by department head. | (41:41) | |
| • | penalty for noncompliance. | (41:43) | |
| • | delivery of paychecks to department heads. | (41:41A) | |
| • | direct deposit to financial institution. | (41:41B) | |
| • | prepaid vacation pay. | (44:65) | |
| • | deferred compensation. | (44:67; 29:64B) | |
| • | IRAs. | (44:67A; 29:64C) | |
A later section of this chapter deals with statutory provisions relating to various withholdings from wages.
A treasurer should take the necessary steps to gather the requisite documentation prior to a new employee’s appearing on a payroll warrant. These steps might include:
- >Establishing a requirement that all department heads timely notify the treasurer of the hiring of a new employee by completing a New Employee Form. (See pg. 7-28.)
- Requiring all new employees to provide a copy of their Social Security cards to enhance correct wage deducting and reporting.
- Sending to all departments a New Employee Packet for their new employees to complete. This packet should include:
- Form I-9. The 1986 Immigration and Reform Act seeks to reduce illegal alien migration by eliminating employment as an enticement for unauthorized persons to enter the United States. To accomplish this, the act imposes a responsibility on all employers to provide documentation confirming that their employees are eligible to work in the U.S. and that their identities match the information on their employment authorization documents. Employers must also require their employees to fill out a Form I-9 within 3 business days of commencing employment (or on the 1st day of employment if a job will last less than 3 days). (See Form I-9, pp. 7-29 through 7-31.) Employees must also submit the appropriate identity and employment eligibility documents. The treasurer should retain copies of these identity documents with the Forms I-9 in a separate file.
- Form W-4/M-4. All new employees must complete a Form W-4 for federal tax withholding purposes. (See Form W-4, pp. 7-32 & 7-33.) Any employee who undergoes a pay lapse for a period greater than 2 weeks, such as for an unpaid leave of absence, must fill out a new Form W-4. All new employees must fill out a Form M-4, as well, for state income tax withholding purposes unless they choose to claim the same number of exemptions for both state and federal income taxes, in which case they need only to complete a Form W-4. (See Form M-4, pg. 7-34.) For each newly hired employee, the treasurer must send, for child support enforcement purposes, either the employee’s name and Social Security number or a copy of the employee’s Form W-4 to the Child Support Enforcement Division of the Department of Revenue within 14 days of the commencement of employment. (P.O. Box 7032, Boston, MA 02204; Web site www.state.ma.us/dor/forms; Fax: 617-887-5049)
- Form W-5. An employee who is eligible for the “Earned Income Credit,” a refundable federal income tax credit for low-income working individuals and families, must fill out a Form W-5, instead of a Form W-4. (See Form W-5, pp. 7-35 through 7-38.)
- Retirement Forms. New, full-time employees must complete the requisite, new member, enrollment forms for retirement benefits in their respective municipal, county or regional retirement systems and must supply copies of their birth certificates. Most systems currently withhold 9% of employees’ regular compensation, up to $30,000.00, and an additional 2% for any compensation exceeding that amount. (See New Member Enrollment Form for Plymouth County Retirement System as and example, pp. 7-39 & 7-40; see also Chapter 8 on Retirement.)
- FICA (Federal Insurance Contribution Act). FICA is an acronym for the “Federal Insurance Contributions Act,” a federal government insurance program designed to help retired and disabled persons to pay their living expenses. FICA is more widely spoken of as the Social Security tax. It also called OASI, which represents “Old Age Survivors Insurance.” Social Security coverage is voluntary for local governmental employers who are members of a public retirement system that meets the minimum benefit requirements established by the Internal Revenue Service. However, their participation requires a written agreement between the state and the Social Security Administration. Such an agreement must comply with the provisions of Section 218 of the Social Security Act and is therefore denominated a “Section 218 Agreement.” If a municipal employee is not covered under a Section 218 Agreement or covered by a public retirement system, FICA taxes must be withheld, reported, and paid. FICA taxable wages are taxed at 6.2%, and the employer must match this amount.
- OBRA. Part-time, seasonal or temporary employees of cities and towns must participate in the Massachusetts Deferred Compensation Plan, an alternative to Social Security coverage as permitted by the federal Omnibus Budget Reconciliation Act of 1990 (COBRA). (29:64D) An OBRA employee must contribute at least 7.5% of gross compensation per pay period to the plan on a tax-deferred basis. If they wish, communities may enter into agreements with alternative carriers instead of participating in the state plan. (See Informational Sheet for the Mandatory Deferred Compensation Plan, pgs. 7-41 & 7-42.)
- Medicare. Medicaid is a federal government-sponsored insurance program that provides medical insurance coverage for senior citizens. Local governmental employees hired after March 31, 1986 are generally subject to a Medicare tax in the amount of 1.45% of their total pay, including overtime, to support the cost of the program. The assessment pertains to full-time, part-time and seasonal employees alike. A former elected official, whose original election occurred prior to March 31, 1986 and who was reelected subsequent to that date to the same or some other office within the same community, is not subject to the tax. Similarly, a worker hired prior to the March 31, 1986 date who later transfers from one department to another within the same community is not subject. However, the Medicare tax does apply to a person who transfers from one community to another. Temporary workers hired for certain emergencies and unemployed individuals participating in re-employment programs are expressly excluded from coverage.
- Sexual Harassment Policy. Ch. 151B §3A requires all Massachusetts employers to adopt a policy against sexual harassment and to annually provide an individual written copy of that policy to all employees. A new employee must be provided with a copy at the time of commencement of employment. The employer should obtain from the employee a written acknowledgement of receipt of the policy. (See sample acknowledgement of receipt, pg. 7-43, and sample policy, pp. 7-44 through 7-48.)
- Work Permits. No person may employ any child under the age of 16 except a child over 14 who has been granted an employment permit by the local superintendent of schools. (149:86) Students can generally acquire “work permits” through their school guidance offices. In seeking an employment permit, a minor must present a certificate, signed by a school or family physician or by a physician appointed by the school committee, attesting a sufficient soundness of health to perform the particular work. (149:87) An employer should not permit a minor to work until after that minor has obtained a work permit. On termination of employment, the employer must return the permit within 2 days to the superintendent of schools.
- Direct Deposit. In a municipality that has accepted Ch. 41 §41B, employees may have their wages, salary or other compensation deposited automatically into their bank accounts. Treasurers must ensure that such deposits are made in a timely manner. A treasurer might incorporate a short trial period as part of implementing direct deposits for an employee setting up a new account to make certain that the account and routing numbers are correct. The treasurer should include a copy of a direct deposit request form in the new employee packet. (See pg. 7-49.)
- Insurance Information. The treasurer should also include in the new employee packet the requisite forms for selecting health, dental, life, disability and other insurance plans available to employees, as well as forms and information about the municipality’s “cafeteria plan,” if the municipality offers such a plan. The included materials should also provide information about the deadlines for applying for any available municipal plans. The treasurer should make sure that any employee who decides not to participate in any municipal health insurance plan or cafeteria plan signs a waiver. (See pp. 7-50 & 7-51.)
- Drug Free Workplace and Substance Abuse Policies. In a community that has adopted a Drug Free Workplace Policy and/or a Substance Abuse Policy, the treasurer should include copies of these policies in the new employee packet. (See pg. 7-52.)
- Other Material – Some municipalities include other materials in their new employee packets. These materials may consist of such documents as the personnel bylaws or the forms an employee must fill out to join a credit union or to purchase savings bonds.
- The treasurer should also review IRS Form SS-8 to correctly ascertain whether a person is an employee or a subcontractor. (See pg. 7-53.)
The treasurer should create a “New Employee Checklist” that identifies all of the documents that should be contained in the new employee packet and make certain to receive from every new employee a filled out and signed copy of this document. This procedure will help to avoid questions in the future about whether a particular employee was supplied with particular information. (See sample form, pg. 7-54.)
Upon receiving all of the requisite forms properly filled out from a new employee, the treasurer should enter the employee into the payroll system. Forms W-4 and M-4 constitute the best sources from which to record an employee’s name, address, Social Security number, marital status, and number of withholding allowances. The treasurer should use the pertinent other forms to set up retirement and benefit deductions.
Pursuant to Ch. 62E §2, all employers, including cities, towns and districts, must report newly-hired employees, as well as independent contractors who are to be paid $600 or more over the course of a year, to DOR within 14 days of hire. Additional information on new-hire reporting requirements and reporting methods may be obtained on-line at www.mass.gov/dor. A treasurer may also file reports using paper forms, which are available on-line as well.
A treasurer may prepare the municipal payroll in-house, either manually or computer-assisted. Alternatively, the treasurer may contract out the work to a payroll service through the bid process. In either case, however, the treasurer is ultimately responsible for the payroll function.
The treasurer’s payroll processing begins with the receipt from the auditor or accountant of the approved payrolls, initially sworn to by the various department heads. The treasurer must enter the amount of each employee’s earned wages and calculate the appropriate mandatory and voluntary deductions. Most municipalities utilize a computer payroll program, specifically designed for municipal payroll needs.
The charts on pages 7-55 through 7-57 outline the flow of payroll deductions. Pages 7-58 through 7-61 display a number of forms a treasurer might find helpful in administering the payroll. These forms include a work schedule, a payroll, and a payroll warrant. Ch. 41 §42 identifies the information that must make up the content of a payroll. This information consists of each employee’s (a) name, (b) title or position, (c) salary, wages or other compensation, and (d) dates of employment.
Ch. 41 §41A permits the treasurer to deliver payroll checks to department heads or their designees for distribution to the employees of their respective departments, with the approval of the mayor or selectmen. While cities and towns may vary in their distribution procedures, payroll processing must comply strictly with statutory requirements in every municipality. Importantly, the treasurer must never distribute payroll checks until after receipt of a sworn payroll and an approved, signed warrant. (41:41 & 52)
The treasurer is responsible to administer all payroll deductions. A payroll deduction may only be made if expressly authorized by law. Some deductions, such as deductions for tax withholdings, require no specific authorization from the employee. Other deductions, however, such as deductions for union dues, must be expressly authorized, in writing, by the employee. Payroll deductions are typically made for the following:
Federal Income Tax (58:28A): The amount of an employee’s federal tax deduction is based on the employee’s taxable wages, marital status, and number of withholding allowances. Therefore, since this information comes from the employee’s Form W-4, the treasurer should make certain to have on file a current Form W-4 for each employee. The IRS provides tax tables to assist employers in determining the correct amount to deduct from their employees’ compensation for federal income taxes. (See Circular E, Employer’s Tax Guide.)
State Income Tax (62B:2). Massachusetts income tax withholding law parallels federal income tax withholding law. Correspondingly, the amount of the state income tax deduction is based on an employee’s taxable wages, marital status, and number of exemptions claimed. A Form M-4 is only necessary if an employee claims different exemptions for state income tax purposes than for federal income tax purposes. (See Circular M, Massachusetts Income Tax Withholding Schedules.)
Retirement Contribution (32:22). The percentage of an employee’s regular compensation that the treasurer must withhold for retirement contribution depends on the date that employee began service with the municipality. The percentages range from 5% to 9%, as follows: 5% for an employee who began service on or before January 1, 1975; 7% for an employee who began service on or after January 1, 1975, but before January 1, 1984; 8% for an employee who began service on or after January 1, 1984, but before July 1, 1996; and 9% for an employee who began service on or after July 1, 1996. Moreover, in any community which has accepted the local option provision contained in paragraph (1)(b½) of Ch. 32 §22, for every employee who entered service with the municipality on or after January 1, 1979, the treasurer must withhold an additional 2% of the amount of that employee’s regular compensation that exceeds $30,000. (See table, pg. 7-62.) An exception to these percentages exists in the case of teachers participating in the alternative superannuation retirement benefit program, set out in Ch. 32 §5, as amended by Ch. 68 §12 of the Acts of 1999. The treasurer must withhold 11% of their regular compensation, pursuant to a list of participating teachers submitted to the treasurer by the school committee, board of trustees or other employing authority.
Ch. 35 §32A and Ch. 40 §5D require that all federal grants received by local governments be charged for pension costs incurred because of the grant. County, municipal and district treasurers must make provisions for charging federal grants for the pension costs of all active members of a retirement system whose salaries are paid from these grants. This charge is separate from the member’s mandatory contribution. The Division of Public Employee Retirement Administration (PERA) has determined that the appropriate charge for all federal grants is 9% of total grant salaries. (See IGR 90-106, pp. 7-63 & 7-64.)
Group Life and Health Insurance : Municipalities which accept the provisions of Ch. 32B may provide their employees with a group life and health insurance plan. The amount withheld from an employee’s compensation for participation in such a plan will depend on the plan’s cost and the percentage of that cost which the municipality votes to contribute. The municipality must pay at least 50% of the life and health insurance cost under the plan and may vote to pay any amount more than that minimum, up to 99.5%. Different sections of Ch. 32B afford different eligibilities, rights and coverage ratios. A municipality’s responsibilities regarding these variables depends on the particular sections of Ch. 32B it accepts.
Each employee eligible for insurance coverage must either (a) specify to the treasurer the particular plan desired and the identity of the employee’s dependents or (b) decline insurance coverage. The treasurer must maintain good insurance records, both for employees who are covered under the municipal plan and employees who have declined coverage. Periodically, the treasurer should update beneficiary information on various benefit plans and retirement records. Well-maintained and updated records become extremely valuable when questions arise regarding insurance coverage and beneficiaries.
Annuities and Deferred Income : The General Laws provide various programs which permit employees to defer certain income from taxation. For each program, different rules apply. The treasurer should become familiar with the relevant statutes in order to understand the rules, restrictions and administrative procedures for each program. These include:
- Individual Retirement Accounts. (44:67A)
- Deferred compensation. (44:67)
- Tax Sheltered Annuities:
- school personnel. (71:37B)
- municipal hospital employees. (40:55)
Some communities select plan administrators for IRAs and deferred compensation through competitive bids. Others utilize the state-selected carriers.
Workers’ Compensation :
G.L. Ch. 152 provides workers’ compensation benefits to employees who are injured during the course of their employment or suffer from work-related mental or emotional disabilities or occupational diseases. These benefits include weekly compensation for lost income during the periods they cannot work. Indemnity payments vary, depending on the average weekly wage of an employee and the degree of the employee’s incapacitation. The statute dictates a maximum benefit of 100% and a minimum benefit of 20% of the state average weekly wage. In addition, an employer’s insurer must furnish medicines and medical treatment, as needed. The insurer must also pay for the vocational rehabilitation services of an employee deemed eligible by the Department of Industrial Accidents.
Payments under Ch. 152 are not subject to federal unemployment or income tax. They are, nevertheless, subject to Social Security and Medicare taxes to the same extent as an employee’s regular wages until after the expiration of 6 months following the last calendar month in which the employee worked for the employer.
Pursuant to Ch. 41 §111F, police officers and firefighters receive leave without loss of pay for any periods during which they are incapable of carrying out their responsibilities due to injuries sustained in the performance of duty without fault of their own. “Injured-on-duty pay” is exempt from both state and federal taxes.
Garnishments : A garnishment is a legal or equitable procedure through which some portion of a person’s earnings is required to be withheld by an employer for the payment of a debt. A person’s earnings may be garnished for unpaid federal taxes and for unpaid state taxes. (26 USCA §§6321-6236; 62C:50) However, Title III of the Consumer Credit Protection Act limits the amount of an employee’s earnings that may be garnished for federal tax delinquencies, and, in similar manner, Ch. 62C §55A sets out wage garnishment limits for state tax delinquencies. (See pg. 7-65 for federal limitations on wage garnishment.)
Child Support : An employer may be required to withhold court-ordered child support from an employee’s compensation and remit the withheld amount to DOR’s Child Support Enforcement Division. (119A:12; see pp. 7-66 through 7-68.) The withholding must begin with the first compensation payment that occurs more than 3 days after the employer receives notice of the withholding requirement and must continue until the employee leaves the employment or DOR notifies the employer to terminate the withholding. If the employee leaves the employment, the employer must notify DOR of the departure and identify the subsequent employer, if known, prior to the time that the next payment is due to DOR. A child support enforcement agency in another state may request DOR to enforce a child support order issued by a court or administrative agency of that state. (119A:8; see pages 7-69 through 7-70.)
Delinquent Taxes Owed a Municipality : Under the set-off provisions of Ch. 60 §93, the treasurer may withhold payment of any money payable to any person who owes taxes, assessments, rates or other charges that have been committed to the tax collector. The amount withheld may include interest and collection costs added to the original amount due. Wages of a municipal employee may be set off under this statute against delinquent amounts owed by an employee. However, the treasurer should be certain that the employee receives at least those minimum amounts required under federal and state garnishment laws, cited above.
Other Deductions 149: 178B): The treasurer of a city or town that has an ordinance, by-law or collective bargaining agreement so requiring shall, and unless contrary to a by-law or ordinance the treasurer may, make deductions from an employee’s salary in an amount the employee authorizes in writing for purchasing shares of, making deposits in, or repaying loans of eligible institutions. (149:178B) Eligible institutions include:
- Credit unions.
- Savings or cooperative banks.
- Trust companies.
- National banking associations.
- Federal savings and loan associations.
- Federal credit unions.
- Banking or Morris Plan companies.
Within 14 days of a deduction under this statute, the treasurer must transmit the deducted money to the appropriate officer of the financial institution for the purpose(s) specified by the employee.
A treasurer may deduct monies from the pension or retirement allowance of a retired municipal employee for deposit into a credit union specified by the retired employee in such amounts as the employee designates in writing. (41:41C)
The treasurer may make payroll deductions for the purchase of U.S. Savings Bonds. (154:8) The treasurer may also make payroll deductions for the payment, in whole or in part, of premiums on employees’ group automobile and homeowner’s insurance policies. (175:193R)
G.L. Ch. 180 permits payroll deductions for the following purposes:
| • | Union dues. | (180:17A) |
| • | United fund or community chest contributions. | (180:17B) |
| • | Teachers union or association dues. | (180:17C) |
| • | Teachers income protection insurance premiums. | (180:17D) |
| • | School nurses union or association dues. | (180:17E) |
| • | Mass. independent health agency contributions. | (180:17F) |
| • | Agency fees in lieu of union dues. | (180:17G) |
| • | Public transportation periodic passes. | (180:17H) |
| • | Health insurance premiums for members of employee associations. | (180:17J) |
| • | State teacher association contributions. | (180:17I) |
| • | Qualified state tuition program. | (180:17L) |
Reconciliation of Payroll Deductions
The treasurer should reconcile payroll deductions at least monthly to make certain that the amounts deducted from individual employee checks equals the aggregate amount transmitted to the IRS, DOR, insurance companies, agencies and other organizations. The treasurer should also substantiate that the detailed listings balance with the actual payroll deductions. Performing bookkeeping functions carefully will help avoid making overpayments, on the one hand, and encountering the kinds of liabilities that can arise from mistakenly omitting an eligible employee from the municipality’s group insurance plan, on the other.
Treasurers in smaller communities generally perform reconciliations on their own. In larger communities, though, treasurers ordinarily use payroll services that provide payroll reports with an automatic reconciliation. Utilizing such services, however, does not free the treasurer of the ultimate responsibility to verify the accuracy of those reconciliations.
Examples of Payroll Records to be Kept on File
Federal and state law require that adequate payroll records be maintained on a calendar year basis, i.e., January 1st through December 31st. Failure to keep adequate records may subject a municipality to penalties. Free pamphlets and brochures are available from various federal and state agencies, such as the Massachusetts Division of Employment and Training, the Department of Revenue and the Internal Revenue Service, that explain the various records required for each type of payroll, provide instructions for creating the required reports, and include comprehensive income tax withholding tables. Payroll forms that must be kept on file include the following:
- Employee Forms
- Form I-9, together with employee identification materials.
- Forms W-4 and M-4, signed by respective employees.
- Cafeteria plan records. A Cafeteria plan is a “qualified” employee benefit program offered by an employer under §125 of the Internal Revenue Code. Employees under such a plan may select the particular benefits desired. The plan must offer at least one nontaxable benefit (e.g., accident or health insurance coverage) and at least one taxable benefit (e.g., cash). Treasury regulations require that a cafeteria plan be in writing and formally adopted before the first pre-tax salary reduction. Participating employees may choose to divert a portion of their taxable salary to nontaxable fringe benefits, such as accident or health insurance coverage. They can choose only those benefits they desire and pay for them by pre-tax or after-tax salary reduction. Plans are administered under regulations issued by Congress, the Internal Revenue Service and the Department of Labor.
- Payroll Warrants. Payroll warrants contain each employee’s name, hours worked, pay rate, gross pay, deductions and net pay. The treasurer should reconcile payroll records on a quarterly basis. Each warrant must be signed by the appropriate authority, i.e., the accountant and selectmen in towns and the auditor and council in a city. Warrants are designated as permanent records on the Secretary of State’s record retention schedule. Computer records cannot constitute the only payroll record for record retention purposes.
- Payroll Checks and Direct Deposit Registers. Payroll checks and direct deposit registers that disclose employees’ names, payroll check numbers and net amounts paid each pay period must be retained per retention schedule.
If an employee selects tax-exempt benefits under a cafeteria plan, Federal income tax withholding and Social Security, Medicare and unemployment taxes generally do not apply to the chosen benefits, even though the employee could have selected cash. On the other hand, if the employee chooses cash instead of benefits, all of these deductions will apply as they would to ordinary wage payments. Importantly, if a benefit is taxable outside a cafeteria plan, it continues to be taxable when provided under a cafeteria plan.
Reporting and Payment Transmittal Requirements
Since the payroll deductions made by a treasurer must be disbursed to a variety of governmental units and other agencies, proper reporting of these deductions is critical. Generally, municipal payroll reports provide a summary of the municipality’s actual wages paid, deductions taken, and payments made for some discrete period of time, i.e., a week, month, quarter or calendar year. Payroll registers provide the primary basis for most of a treasurer’s payroll reports. In carrying out reporting requirements, treasurers should pay particular attention to due dates for specific reports. Missing a due date might subject the municipality to interest and penalty assessments.
Social Security, Medicare and Income Taxes :
The treasurer must withhold monies from municipal employee compensation for Medicare, Social Security taxes and income taxes. Employers are required to match employee payroll contributions for Medicare and Social Security taxes. The treasurer must make certain that the requisite monies are deducted from payroll checks and that these monies, together with the community’s Medicare and Social Security matching contributions and its Federal Unemployment Tax Act (FUTA) assessment, are forwarded to the Internal Revenue Service, using Form 941. Form 941 must be filed quarterly, in accordance with the following schedule:
| • | For the first quarter, ending March 31st | April 30th |
| • | For the second quarter, ending June 30th | July 31st |
| • | For the third quarter, ending September 30th | October 31st |
| • | For the fourth quarter, ending December 31st | January 31st |
The treasurer must transmit all monies deducted from employees’ salaries pursuant to court-issued child support judgments to the Department of Revenue’s Child Support Enforcement Division within 3 days of the date the employees are paid. (119A:12)
Financial Institutions ; Credit Unions
The treasurer must transmit all monies deducted from employees’ compensation for deposit into credit unions or other financial institutions within 14 days of making the deductions. (149:178B)
Federal Tax Deposit Requirements for Employment Taxes
Employers are generally required to make periodic deposits of monies deducted from payrolls for federal employment tax purposes, including monies withheld for Federal income taxes and Social Security and Medicare taxes, regardless how many employees an employer has. The deposit schedule for these employment taxes may be either monthly or semi-weekly, depending on the amount withheld during a four-quarter look-back period. The look-back period for any particular calendar year is the July 1st through June 30th interval which preceded that calendar year. For example, the look-back period for calendar year 2003 would be the 4 calendar quarters from July 1, 2001 through June 30, 2002.
Making Payments Electronically or Manually
A treasurer may transmit employment tax payments on-line, using the Electronic Federal Tax Payment System (EFTPS), a convenient and secure payment method. To enroll in EFTPS, the treasurer can visit the website www.eftps.gov or can telephone 1-800-945-8400 or 1-800-555-4477. (See pp. 7-71 & 7-72.) Alternatively, the treasurer can make payments by mail or by delivering Form 8109, Federal Tax Deposit Coupon, with the payment to an authorized financial institution or to the Federal Reserve Bank or one of its branches.
The following schedule illustrates the frequency with which employment taxes must be deposited:
When to Deposit Employment Taxes
Start Here:
| Will your total taxes for the calen-dar quarter be less than $500.00? If you are unsure, answer NO. | YES  |
Deposit taxes by the end of the month following the quarter, or mail taxes with Form 941. | ||
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| Are your accumulated unde-posited taxes $100,000 or more? | YES |
Deposit taxes by the next banking day. | ||
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| Did you fall under the $100,000 rule at any time during this year or last year? | YES |
You are a semiweekly
depositor for the calendar year. Deposit taxes accumulated
for:
** Wednesday, Thursday, and Friday by the following Wednesday. ** Saturday, Sunday, Monday, and Tuesday by the following Friday. |
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| Is the total of taxes for the look-back period more than $50,000? | YES |
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You are a monthly depositor. Deposit taxes accumulated for the calendar month by the 15th of the following month. |
State Tax Deposit Requirements for Employment Taxes
Employers must timely transmit to the DOR all monies withheld for state employment taxes. Payments must be accompanied with a payroll tax return. The payment due date depends on the aggregate amount withheld during the calendar year. (See 830 CMR 62B.2.1.) The following table identifies the due date and the proper tax return for each of the statutory ranges of withheld amounts:
| Amount Withheld Per Year |
Type of Return |
Payment Schedule/Due Date |
| $100 or less. |
M-941A |
Annual – January 31. |
| $100 – $1,200. |
M-941 |
Quarterly – January 31, April 30, July 31, October 31. |
| $1,200 – $25,000. |
M-942 |
Monthly – 15th day of the following month. |
| More than $25,000. |
M-941W |
Weekly – third business day following the 7th, 15th, 22nd, and the last day of the month. |
Reports relating to payroll deductions and payments of deducted monies must be made at different intervals, i.e., monthly, quarterly or annually, depending on the specific report and the kind of deduction.
Monthly requirements : The treasurer must transmit monthly to the appropriate agency monies deducted from employees’ compensation for tax-sheltered annuity plans, health insurance, life insurance, savings bonds, retirement, disability insurance and union dues.
Quarterly requirements : The treasurer must mail or file the following reports within 30 days of the end of a calendar quarter. (For example, a payroll return for a quarter ending March 31st must be mailed or filed on or before April 30th.)
- Form WR-1, Employer’s Quarterly Report of Wages Paid. Form WR-1 must be filed with the DOR on the 15th day of the month following the end of each calendar quarter. DOR will send the form to registered employers on a quarterly basis. The wage reporting system’s purpose is to verify a person’s eligibility for programs such as welfare, Medicaid, unemployment compensation and workers’ compensation. In addition, the system helps to track down parents who fail to pay any child support they may owe. Requirements under this system are separate from requirements to submit income tax withholding forms. Employers also must report all newly hired employees, employees returning to the payroll and independent contractors within 2 weeks of an employee’s first day on the job.
- Form 941, Payment Voucher. This form must be filed with the IRS by the last day of the month following the end of a calendar quarter. (See pp. 7-73 through 7-77.)
- Health Insurance Contribution Report. Every employer of one or more permanent, temporary or part-time workers in Massachusetts must provide the Division of Employment and Training (DET) with information about the number, status and wages of all persons employed. DET will determine whether the employer is subject to unemployment insurance contributions. Generally, an employer who (a) pays wages of $1,500 or more in a calendar quarter or (b) has one or more employees who work one or more days in each of 13 weeks during a calendar year is obliged to pay unemployment insurance. Municipalities are expressly exempt from having to make contributions; however, they must file quarterly reports. (See pg. 7-78.)
Annual requirements :
- Form 5500, Report of Employee Benefit Plan. Formerly, the treasurer had to annually file a Form 5500 with the U.S. Department of Labor’s Pension and Welfare Benefits Administration (PWBA) for every pension benefit plan, welfare benefit plan and fringe benefit plan offered by the municipality. However, the IRS suspended this filing requirement in April of 2002 for cafeteria plans, educational assistance programs, and adoption assistance programs. The suspension of the filing requirement is outlined in the IRS’s Notice 2002-24. It applies to all plan years, including years prior to 2001. During the suspension period, the IRS will review reporting requirements and electronic filing options.
- Forms W-2 & W-3.
- The treasurer must prepare a Form W-2, Wage and Tax Statement, for every person who was employed by the municipality during the calendar year and transmit that statement to the employee on or before January 31st of the following year. Form W-2 must show the total amount of wages paid, the total Social Security and Medicare taxes withheld, and the amount of federal and Massachusetts income tax withheld for the subject year.
- Any employer required to file Form W-2 must also file Form W-3, Transmittal of Income and Tax Statements. The treasurer must send Form W-3, together with Copy A of each employee’s Form W-2, to the Social Security Administration, the IRS, and the DOR. The treasurer should retain a copy of Form W-3 for each calendar year, in addition to Copy D of each employee’s Form W-2 for that year, for at least 4 years.
- An employer can file Form W-3 with Forms W-2 to the IRS and the Social Security Administration either electronically or in paper form. Paper filings must be submitted by the February 28th following the end of the calendar year. Electronic filings must be submitted by March 31st. The DOR requires employers with 250 or more employees who file electronically with the IRS to file likewise with the DOR. Forms W-2 and W-3 must be filed with DOR by the last day of February for the preceding year. Employers with fewer than 250 employees are encouraged, but not required, to file Forms W-2 on magnetic media.
- Update Tax Tables and Withholding Limits. After completing the final payroll of a calendar year, the treasurer must update the tax tables and withholding limits for state, federal, FICA and Medicare taxes for the following calendar year. The necessary information may be found in Massachusetts Circular M, a booklet of income tax withholding tables, available from the DOR, and Publication 15, also known as Circular E, Employer’s Tax Guide, available from the IRS. The treasurer should maintain these documents as permanent records.
- Issue Forms 1099. At the end of each calendar year, the treasurer, accountant or auditor should issue a Form 1099 MISC to each non-employee service provider who received $600 or more in payments during that calendar year. Compensation paid to an employee should not be reported on a Form 1099 MISC; these amounts should be reported on a Form W-2.
Miscellaneous Legal Requirements Information
In 1986, Congress enacted the Consolidated Omnibus Budget Reconciliation Act (COBRA), which extends health benefits to former employees and their dependents, enabling these persons to temporarily continue health insurance at group rates. The law covers group health plans offered by employers with 20 or more employees in the prior year. It applies both to private sector plans and to plans sponsored by state and local governments. It does not, however, cover plans sponsored by the federal government or by certain church-related organizations. (See pp. 7-79 through 7-82.)
Covered Individual or Qualified Beneficiary
A covered individual or qualified beneficiary is any individual covered by an employer-based group health insurance plan who would otherwise lose coverage due to the occurrence of a qualifying event. Qualifying beneficiaries include:
- Employees who have been separated from their employment position or reduced in employment hours.
- Surviving spouses and children of deceased employees.
- Separated, divorced, or Medicaid-ineligible spouses.
- Children (of current employees) who would lose coverage because of age or loss of full time student status.
The following are qualifying events under COBRA:
- Death of a covered employee.
- Termination of a covered employee (including dismissal for cause, but not for “gross misconduct”).
- Reduction in work hours of a covered employee which would place that employee under minimum eligibility requirements.
- Covered employee’s becoming entitled to Medicare benefits.
A treasurer must initially notify each new municipal employee and qualifying beneficiary of COBRA rights at the time the employee enrolls in a group health plan offered by the municipality. Subsequently, the treasurer must notify the municipality’s health plan administrator within 14 days of becoming aware of the occurrence of a “qualifying event.”
A covered individual or qualified beneficiary must notify the health plan administrator within 60 days of the occurrence of one of the following events:
- A covered employee’s divorce or legal separation.
- A dependent child’s ceasing to be a dependent under the health plan.
A qualified beneficiary must elect continued coverage within 60 days of a “qualifying event” or 60 days from the time notice of that event was given, whichever is later. A beneficiary who elects continued coverage must pay102% of the applicable group premium.
Continued coverage must be available to a qualified beneficiary as follows:
- Up to 18 months for covered employees, as well as their spouses and their dependents, when workers otherwise would lose coverage because of a termination or reduction of hours.
- Up to 29 months for covered employees who are determined to have been disabled at any time during the first 60 days of COBRA coverage; this coverage applies also to the disabled employee’s nondisabled qualified beneficiaries.
- Up to 36 months for spouses and dependents who face a loss of employer-provided coverage due to an employee’s death, a divorce or legal separation, or certain other “qualifying events”.
COBRA coverage can be ended, however, under the following circumstances:
- Group health plan is terminated for all employees.
- Terminated employee or qualified beneficiary fails to make required payments timely.
- Qualified beneficiary becomes employed and covered by another health plan.
- Qualified beneficiary becomes eligible for Medicare.
- Former spouse remarries and becomes covered under another group health plan.
An employer must make a conversion option available at the end of COBRA coverage if such a conversion option is otherwise available under the group health plan. The treasurer must notify each qualified beneficiary of available conversion options during the 180 days prior to the expiration of the COBRA extended coverage.
A plan member who undergoes a qualifying event is responsible for payment of the cost of the health insurance premium. Employers may charge up to 102% of their cost, and the beneficiary may elect to pay this cost in monthly installments. For self-insured plans, the premium is generally equal to the “reasonable estimate of cost of coverage” as determined on an actuarial basis. In some cases the employer may elect to use, as the cost of the plan, the cost for a similarly situated beneficiary for the previous year, adjusted to reflect cost-of-living changes as measured by the gross national product deflator.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) protects health insurance coverage for workers and their families when they change or lose their jobs. Portability under HIPAA does not mean that individuals can transfer their current health benefits, plan or policy with them when they proceed from one health plan or policy to another. Rather it means that once an individual has obtained health coverage, this coverage may be utilized to reduce or eliminate any preexisting-condition exclusion to which that individual might otherwise be subject upon moving to another employer’s group health plan. Hence, HIPAA protections act to (a) limit exclusions for preexisting-conditions, (b) prohibit discrimination against employees and dependents based on their health status and (c) allow a special enrollment opportunity in a new plan to individuals in certain circumstances. When an employee leaves voluntarily or is terminated from a position, the employer must furnish the employee with a certificate indicating the length of time the employee and dependents were enrolled in the health benefit plan. The employee can then give that certificate to the new employer to demonstrate prior creditable coverage under a group health insurance plan. Furthermore, HIPAA responsibilities do not eliminate or replace employers’ responsibilities under COBRA.
The Tax Equity and Fiscal Responsibility Act (TEFRA), passed by Congress in 1982, amended the Age Discrimination in Employment Act of 1967. Section 116(b) of TEFRA requires employers to offer active employees aged 65 and over, and their spouses aged 65 and over, the same group health plans they offer to younger workers. Employers subject to TEFRA must permit employees aged 65 and over to remain on the employer’s plan as primary coverage unless the employee elects Medicare as the primary coverage. However, if the employee elects Medicare as the primary coverage, the law does not allow the private plan to pay as a secondary carrier; Medicare would be the only coverage available. If the employee wants to have secondary coverage, that employee would have to purchase a Medicare supplement.
Unemployment Compensation (151A: 14A)
Although municipalities may choose to be exempt from making regular contributions to the Division of Employment and Training (DET) for unemployment compensation purposes, they must, nevertheless, reimburse DET for benefits actually paid by that agency to eligible workers. Municipalities may make reimbursements either by contributing a percentage of their annual payrolls, based on their respective unemployment compensation histories, as calculated by DET, or by tendering payment on a monthly or quarterly basis, on a pay-as-you-go basis, for benefits paid by DET.
Family and Medical Leave Act of 1993 (FMLA)
FMLA requires “covered employers,” i.e., employers who employed 50 or more employees for each working day during 20 or more calendar workweeks in the current or preceding calendar year, to provide up to 12 weeks of unpaid job-protected leave to “eligible” employees for certain family and medical reasons. An eligible employee must work at a worksite that employs 50 or more employees within 75 miles, and the employee must have been employed for at least: (1) 12 months (need not be consecutive); and (2) worked 1,250 hours during the previous 12-month period.
An employee may take leave under FMLA for any of the following reasons: (1) birth of a child and to care for the newborn child after birth, (2) placement of a child for adoption or foster care, (3) care for a spouse, son, daughter or parent with a serious health condition, or (4) serious health condition that renders the employee unable to perform one or more of the essential functions of the job.
Advance Notice and Medical Certification
An employee seeking leave under FMLA may be required to provide the employer with advance notice of a request for leave. Generally, an employee must provide at least 30 days advance notice when the request is “foreseeable.” The employer may also require an employee to provide medical certification in support of a request for leave because of a serious health condition. Further, the employer may require that employee to obtain a second or third opinion (at the employer’s expense). The employer may deny a request for leave if the employee fails to meet these requirements. Finally, an employer may require an employee who takes leave because of a serious health condition to provide a fitness report before returning to work.
As noted above, Ch. 151B §3A requires all Massachusetts employers to adopt a policy against sexual harassment, to annually provide an individual written copy of that policy to all employees and to review this policy with their employees on a yearly basis. All new employees should be required to sign an acknowledgment that they have received and understand the policy. See pp. 7-43 through 7-48 for a sample sexual harassment policy and related materials.
Personal Use of Municipally-Provided Vehicles
Under the Internal Revenue Code, the personal use of a municipally-provided vehicle by a municipal employee constitutes a taxable fringe benefit. Therefore, if a municipal employee uses a municipally-provided vehicle for personal reasons, the treasurer must determine the value of that use and withhold the applicable Social Security and Medicare taxes. The treasurer must also either withhold income taxes on the value of that benefit or, alternatively, inform the employee and include the value of the use on the employee’s Form W-2.
Certain vehicles, however, are characterized as “non personal-use vehicles” by the IRS. Personal use of these vehicles is not subject to taxation as a fringe benefit. Qualifying vehicles include (a) clearly marked police and fire vehicles, (b) unmarked vehicles used by law enforcement officers, provided the officer is authorized to carry a firearm, execute search warrants and make arrests, (c) ambulances and hearses used for their specific purposes and (d) school buses.
Calculating the Value of Personal Use a Municipally-Provided Vehicle
To calculate the value of an employee’s personal use of a municipally-provided vehicle, the treasurer must use either the lease rule, the cost-per-mile rule or the commuting value rule, as appropriate in each particular case.
- Automobile Lease Rule. The treasurer must determine the fair market value of the vehicle and then calculate the annual lease value using IRS Publication 15-B.
- Cents-Per-Mile Rule. The treasurer must ascertain that at least 50% of the use is business-related, that the vehicle is driven at least 10,000 miles per year and that the fair market value of the vehicle is less than $15,300 in order to use this rule. In a qualifying situation, the treasurer must apply the cents-per-mile rate established by the IRS for the applicable year.
- Commuting Value Rule. The treasurer must add $3 for each two-way commute and $1.50 per each one-way commute to the employee’s income. This method may be utilized only if the vehicle is owned or leased by the municipality, the employee is required to commute with the vehicle for business reasons, the municipality has a written policy permitting use of the vehicle only for commuting and minimal personal use and the employee uses the vehicle only for commuting and minimal personal use.
The treasurer may obtain current payroll forms and other publications by visiting a federal or state office as well as by requesting the materials by mail at the following addresses:
| State Forms: |
Massachusetts
Department of Revenue |
| Federal Forms: |
Internal
Revenue Services |
The treasurer may also obtain current forms by visiting the following Websites:
| Federal Tax Information |
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| Commonwealth. of MA |
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| Legislature |
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| State Tax Information |
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| Division of Local Services |
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| MA Procurement Information |
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| Dept. of Employment and Training Revenue Service |
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| White House |
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| United States Senate |
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| United States House of Representatives |
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| Bureau of the Public Debt Online |