CAR Newsletter - May 2021

Statewide Cost Allocation Plan
Federal (IRS) W-4 Entries in PS HCM
Employee Direct Deposit Verification of Bank Routing Number
Using State Vehicles to Commute
Processing of Taxable Fringe Benefits with Payable Wages
Military Differential Wage Payments – Taxation and Reporting
GASB 87 Updates
American Payroll Association Monthly Lunch & Learn – OKC Chapter Meeting
AGA Webinars
Payroll Law
Form W-4 and Other Payroll Updates

The Statewide Cost Allocation Plan for Indirect Costs for FY 21 has been approved by Cost Allocation Services and is now posted to our website.

Employees should only be providing the 2021 IRS W-4 form to update withholding elections on the Federal Tax Data page in the HCM system. Any other version of the form should be disregarded and returned to the employee, with no changes made in the system.

Agency personnel must use care when entering employee federal W-4 changes. The “2020 or Later” radio button must be selected so that the appropriate Federal Withholding Elements are visible for data entry. If the information is not entered correctly, employees may have more or less withholding than desired which could impact them at year-end. In addition, not entering the information correctly based on the actual W-4 form would be an audit finding by the IRS and could result in penalties and/or interest being assessed to the agency. The IRS posted a training webinar on their website that agency personnel can view to refresh their knowledge of the W-4 form.

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Employee bank deposit slips should NOT be used to get the bank routing/transit number for setting up direct deposit information. A voided check from the employee is the most reliable method. 

If the employee does not have a voided check or wants to deposit into another type of account, have the employee call the bank directly to get the routing/transit number. A bank routing/transit number should never start with the digit “5”. 

This indicates a branch of the bank and will cause the direct deposit to fail. A direct deposit that fails will not be paid and additional processing will be required of the agency.

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O.S. 47 § 156.1, as amended, prohibits the personal use of state-owned motor vehicles but permits the use of the vehicles for commuting in very specific situations. 2007 OK AG Opinion 18 also addresses this issue.

When a state employee is allowed to commute in accordance with the statute or the attorney general opinion, the agency must notify the governor, the president pro tempore of the Senate and the speaker of the House of Representatives. In addition, when an employee is using a vehicle from OMES Fleet Management, the agency must complete OMES CAM/FLEET MGMT- FORM 022 Authorization for Commuting in State Vehicle.

The IRS considers commuting to be a noncash taxable benefit to the employee even when the use of the vehicle is for the benefit of the employer. There are very few exceptions to the taxability of commuting. Exceptions are for certain vehicles that are not likely to be used for personal use because of their design. These vehicles are listed in IRS Publication 15-B.

• The method of calculating the taxable fringe benefit is dependent on the employee’s status.
• Commuting Rule: Most state employees may use the Commuting Rule. Under this rule, the value of a vehicle provided to an employee for commuting is computed by multiplying each one-way commute by $1.50. If more than one employee commutes in the vehicle, this value applies to each employee. This amount must be included in the employee’s wages or reimbursed by the employee.
• Cents per Mile: A cents-per-mile method may also be used by most state employees.
• Automobile Lease Valuation Rule: Elected officials or employees whose compensation is at least as great as a federal government employee at Executive Level V (for 2021; $161,700) are not allowed to compute taxable income under the Commuting Rule. These officials and employees must use the Automobile Lease Valuation Rule to compute taxable income.
•  All valuation methods are described in detail in IRS Publication 15-B.

The employee may choose to have the value included as taxable income or pay the employer for personal use rather than having it treated as wages. When treating the value as wages, the imputed income is subject to FICA and income tax withholding. The taxable amount, if not paid by the employee, must be processed through payroll so that taxes are calculated and amounts reported on the employees’ W-2.

Process the taxable amount through the HCM system using the TRC Code of CAR, which will show as earnings code CAR. The amount will be included as taxable income and will be taxed on the paycheck.

We recommend the vehicle usage be included in the employee’s payroll each pay period to prevent a large sum being included in the employee’s last pay of the calendar year, resulting in a higher than normal amount of taxes withheld. Additionally, up-to-date reporting of vehicle usage will benefit the agency should the employee terminate during the year.

For more information, please email the central Payroll team at payrollreporting@omes.ok.gov.

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When processing non-paying taxable fringe benefits for employees through payroll, only include the amount when processing payable wages. Non-paying taxable fringe benefits such as vehicle usage (CAR/VEH), moving (MOV) and miscellaneous (MIS) are subject to taxes and require payable wages in order to collect the employee share of taxes. Questions may be directed to the central Payroll team at payrollreporting@omes.ok.gov.

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Military differential wage payments are payments made to an employee during the time the individual is on active duty for a period of more than 30 days and represents all or a portion of the wages an employee would have received from the employer if the individual was performing services for the employer.

Military differential pay is includable as wages for income tax purposes on Form W-2 but is excludable from Social Security and Medicare taxes. To correctly report military differential wage payments, Time Reporting Code MILDF (earnings code MLD) must be used.

Military differential pay is also included in wages for OPERS, OLERS and URSJJ retirement contributions and must be correctly coded in order for the information to be sent to the retirement systems correctly.

Please refer to O.S. 72 § 48 and OAC 260:25-15-44 for additional information related to leave of absence due to military service.

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The new GASB 87 standard goes into effect for FY 22. This standard will require almost every lease entered into by state agencies to be capitalized. This makes it necessary for CAR's financial reporting unit (FRU) to collect detailed information on the lease agreements of every agency. FRU is implementing new software for collecting lease data. Part of the standard requires restatement of the beginning balances. Therefore, any leases active on June 30, 2021, where both lessee and lessor are not general fund agencies, must be reported on the template that is currently being designed. This template will be a new GAAP package that will be part of the 2021 GAAP conversion process.

In the meantime, we strongly suggest that agency business staff begin the process of identifying all leases that will be active at fiscal year-end. Information that must be collected will include, but not be limited to:

• Date lease became effective.
  
• Type of asset being leased.
• Lease term (ex. three years).
• Payment frequency (ex., monthly, annually).
• Lease payment amount.
• Option periods and if there is a reasonable expectation that options will be exercised.
• Interest rate (if stated).
• Fair value of leased asset.

Some of this information may not be straight forward, so it is strongly encouraged that all agencies begin the process of gathering this information as soon as possible. As was mentioned in a previous newsletter, there will be no materiality threshold for the implementation. That means any agency that is subject to GAAP conversion will be required to provide this lease data for every lease no matter how small, even those that have not reported lease information previously.

In addition, the FRU will be seeking 5-10 agencies to assist in the beta testing of the new software by providing some sample lease data. This would be an excellent opportunity to offer input into the process going forward. If you are interested, or have any questions, please contact your financial reporting analyst or Matt Clarkson with FRU.

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Topic: Compliance Basics for Payroll Professionals.
Date: Friday, May 21, 2021.
Time: Noon to 1 p.m. via Zoom.

For more information, please visit their website.

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All webinars, unless denoted with a members-only icon, are open to anyone. They feature experts speaking on emergent issues to keep you in the loop on hot topics in auditing, ethics, governmental accounting, internal controls, performance and more.  Group registration options are available to those who would like to attend together in one location. Otherwise, individuals may register and attend from their own devices. 

Upcoming webinars:

Leadership
June 9, 2021.
1 to 2:50 p.m. 

Check out the website for more information.

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Live online seminars
Presented by Fred Pryor Seminars
For more information, please visit their website.

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Live online webinar
Presented by myCPE.
For more information, please visit their website.

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