We pay certain managers fixed monthly salaries, such as $800. In this instance, if you do the same, do you withhold FICA (12%+) from that salary and send the net amount after withholding or do you gross up the salary to account for that 12% or so? The net amount would be around $704 and the gross $909.
Additionally, if paying an owner solely by free rent on a stick built home, would you pay FICA on this every paycheck? We pay one manager in free rent on a stick built home and the fair market value is $1200 per month.
Do you use a third party payroll processor or could a system like rent manager handle this?
It depends on the state, but in my state you’d be crazy to do payroll yourself. I tried to do it myself and I’m only mildly exaggerating when I say it was brain damage.
You’re asking complicated tax questions that really only a CPA/attorney is qualified to answer. Generally, if living on site is a requirement of employment, you may have good grounds to exclude housing compensation from payroll and taxes.
Here’s my response: (I’m a CPA): We pay a salary. We withhold, just like any other employer. You can’t avoid this.
Now, as to the free rent: our employment agreement includes provisions requiring the manager to live on the premises. Thus, the provision of the mobile home / lot rent is a condition of employment, or as the tax code says “for the convenience of the employer” and can be excluded from taxable compensation.
If the sole compensation is abatement of the rent, you may run into some problems. Fortunately we haven’t had to deal with that. My suggestion is to provide partial abatement ( say 50%) and pay them something , on which you withhold the FICA.
We don’t “gross up” the payroll, although it’s easy enough to do that. ( ok, easy enough for a CPA). I would suggest not doing that to save the mental anguish that it might entail.