Purpose

The purpose of this bulletin is to inform agencies of the processing of the 2020 Prepaid Legal Service Benefit.

Affected Employees

The following employees are affected:

• Employees represented by District Council 37 in Bargaining Units CC, CD,  SF, SJ, T9, TG, TH, TJ, TK, TL, TM, TO, TP, TR, TU, TX, U3, or U6 who reside within the following zip codes:

• Employees represented by Teamsters Local 237 in Bargaining Units SB, SC, SE, SL, SM, SP, ST, SU, SV, SW, SX, SZ, TS, or TT.
• Employees represented by SEIU Local 300 in Bargaining Unit S6.

Note: The Zip Code criteria only applies to members of District Council 37.

Background

Pursuant to Internal Revenue Code Section 61, certain fringe benefits including employer-funded group legal service benefits are considered taxable income. Therefore, the value of this benefit will be added to the employee’s taxable gross wages, for tax withholding purposes, and reflected on the 2020 Form W-2 (Wage and Tax Statement).

Effective Dates

Effective as of paychecks dated November 5, 2020 (Institution).

OSC Actions

OSC will automatically apply the Prepaid Legal Service Benefit for the 2020 calendar year for employees who were in a status of Active or Paid Leave and received salary from a position in one of the designated bargaining units at any time during calendar year 2020.

Listed below are the unions, bargaining units, values of the Prepaid Legal Service Benefit and the Earnings Codes:

District Council 37 has determined that nonresident aliens are eligible to receive this benefit. The Earnings Codes used to process the benefit for nonresident aliens who meet the criteria stated above are as follows:

Effective in 2020, inactive employees who incur a current year Social Security and/or Medicare tax deficiency as a result of the application of the prepaid legal benefit, will not  have their Form W-2 (Wage and Tax Statement) wages (Federal, State, and Local, if applicable) grossed up (increased) for any outstanding balance. Agencies are responsible for notifying their employees of these deficiencies. An alternative method of recovering Social Security and/or Medicare tax deficiencies for inactive employees will be identified.

Agency Action

Agencies must notify affected employees.

Control-D Report

Control-D report NPAY771 (Time Entry Payment Report) identifies all employees for whom the Prepaid Legal Service Benefit was applied.

Tax Information

The Prepaid Legal Service benefit is supplemental taxable income, will be added to the employee’s taxable gross wages, for tax withholding purposes, and is subject to employment and income taxes.

Federal, State, and New York City income tax withholding will be calculated using the Aggregate method. Yonkers income tax withholding will be calculated using the Flat Rate method. Yonkers Flat Rate Withholding is 1.61135% for Yonkers residents and 0.50% for Yonkers non-residents.

Payroll Register and Employee’s Paycheck/Advice

The applicable Earnings Code and associated value will be displayed on the agency’s payroll register and employee’s paycheck and/or direct deposit advice.

Questions

Questions regarding this bulletin may be directed to the Tax and Compliance mailbox.