The Omnibus Reconciliation Act (OBRA) of 1993 will affect two areas of tax administration, effective Jan. 1. The changes, explained below, will impact some types of payments made on Form G or Special Payment Forms.
Taxation of supplemental salary payments
Supplemental salary payments will be taxed at 28 percent. State and FICA (Social Security) tax rates will remain the same, 4.6 percent and 7.65 percent, respectively.
This will affect departments that elect to “gross up” a supplemental salary payment, i.e., increase the payment to pay taxes for the staff member. This typically occurs when a faculty/staff award is processed on a Form G.
The “gross up” factor to use effective Jan. 1 is .5975: net pay desired ½ .5975 = gross pay required.
Taxation of moving and relocation expense reimbursement
OBRA 1993 changed the taxation and reporting of reimbursements for moving and relocation expenses.
The University’s policies on these expenses are in Sec. 201.68 of the Standard Practice Guide (SPG). A revised version will be distributed at a future date. However, the following procedural changes should be implemented Jan. 1 to enable the Payroll Office to comply with OBRA 1993:
Non-taxable reimbursements—For expenses incurred after Dec. 31, 1993, only two categories of reimbursements are non-taxable, provided the move is 50 miles or longer:
1) Expenses for moving household goods and personal effects from the staff member’s old residence to the new residence.
2) Expenses for traveling (including lodging, but not meals) from the old residence to the new residence.
Taxable reimbursements—All other expenses incurred after Dec. 31, 1993, will be taxed at the time reimbursement is made by the Payroll Office and will be reported on the staff member’s Form W-2. Examples include meals while traveling, temporary living expenses and pre-move house-hunting trips.
All expenses reimbursed for a move of less than 50 miles are taxable.
Form G changes—When completing a Form G for reimbursement, continue to follow the process outlined in the SPG, with the following additions:
1) Separate the receipts into taxable and non-taxable categories.
2) Enter three dollar amounts on the Form G: non-taxable amount, taxable amount and grand total on the Amount Line. (See accompanying sample.)
Questions? Contact Norel C. Tullier, 764-8253.
