EMPLOYEE VS CONTRACTOR

Transcription

1 INTERNAL REVENUE SERVICE EMPLOYEE VS CONTRACTOR Presented By: Deishun Garmon-Robinson Badge Number: FSLG Specialist Tax Exempt and Government Entities Internal Revenue Service 1110 Montlimar Drive, Suite 300 Mobile, AL (251) FSLG MISSION STATEMENT Provide Government Entities top quality service by helping them understand and comply with their tax responsibilities and by applying the tax law with integrity and fairness to all. Tax Sheltered Annuities 1

2 Dilemma IS MY WORKER AN EMPLOYEE (EE) OR INDEPENDENT CONTRACTOR (IC) EMPLOYEE DEFINED BY Reg (d)-1 The person for whom services are performed has the RIGHT to control and direct the individual performing the services as to the result and details. It is not necessary that the employer actually exercise the right; it is sufficient that the employer has the right. PUBLICATION 1779 This publication helps you make a determination about the status of a worker as either an independent contractor or an employee Tax Sheltered Annuities 2

3 Independent Contractor or Employee Review the primary factors involved in worker classification to assure proper tax treatment. CATEGORIES OF EVIDENCE Behavioral Control Financial Control Relationship of the Parties INDICATIONS OF BEHAVIORAL CONTROL INSTRUCTIONS 1. Where to do the work 2. What tools and equipment to use 3. When to do the work 4. What work to do 5. Routines or patterns to use Note: Above are not all inclusive Tax Sheltered Annuities 3

4 INDICATIONS OF FINANCIAL CONTROL 1. Extent of reimbursed expenses 2. Extent of worker s investment in business entity 3. Extent to which worker provides services to the public 4. How worker is paid 5. Extent to which the worker can realize a profit or loss February 11, 2014 RELATIONSHIP OF THE PARTIES 1. Written Contracts 2. Employee Benefits Insurance Pension Plan 3. Permanency Is the worker engaged on a continuing relationship rather than for a specific project 4. Are the worker s services a key aspect of regular business activity February 11, 2014 EMPLOYEES SOME FACTORS THAT MAY INDICATE WORKERS ARE EMPLOYEES Required to wear uniforms Required to work certain hours Do not make own appointments Tax Sheltered Annuities 4

5 EMPLOYEES Worker is provided training Worker is provided supplies and materials Worker stands no risk of loss INDEPENDENT CONTRACTOR SOME FACTORS THAT MAY INDICATE WORKERS ARE INDEPENDENT CONTRACTOR Makes own schedule Buys own materials or products Has own phone number Furnishes own supplies Furnishes own equipment Makes a profit or loss as a result of his own business decisions INDEPENDENT CONTRACTOR OR EMPLOYEE??? After considering all factors, if you are still not sure whether a worker is an employee or independent contractor, complete Form SS-8 and send to the Internal Revenue Service for determination Tax Sheltered Annuities 5

6 Determination Made! What Next? EMPLOYEES Forms and Filing Requirements W-4 W-2 and W-3 Form 941 February 11, 2014 EMPLOYEE PROBLEM AREAS Fringe Benefits Uniform Allowances Vehicles (personal use) Day Meals Tax Sheltered Annuities 6

7 I HAVE REVIEWED MY WORKERS AND THEY ARE INDEPENDENT CONTRACTORS Am I Off the Hook? CONTRACTORS Forms and Filing Requirements Form W-9 or substitute 1099-MISC Form 945 for Backup Withholding COMMON ERRORS Failure to secure TIN from a vendor Failure to aggregate payments from all expense categories (use vendor files) Assuming payee is a corporation -because name is Company or Associates -because an EIN is furnished Tax Sheltered Annuities 7

8 Are you required to do Backup Withholding? If you make payments to persons (or corporations) who have not furnished their valid TIN. Withholding rate is 28% Applies to many payments including: NEC Rents When to Begin Backup Withholding Backup Withholding begins when aggregate payments for the calendar year equal or exceed $600, or Immediately if: Payee was paid >$600 in prior year and a 1099 was issued, or Payee was subject to Backup withholding in the prior year How to report BACKUP WITHHOLDING Report withholding to payee and to IRS in box 4 of Form 1099-MISC Form 945 is used to report and pay Backup Withholding to the IRS Annual return due 1/31 Ordinary deposit rules apply Make deposits separate from 941 deposits Tax Sheltered Annuities 8

9 PROBLEM AREAS CONTRACTORS DOING NOTHING Medical Services Attorneys Form W-9 INTERNAL REVENUE SERVICE FRINGE BENEFITS FOR PUBLIC EMPLOYERS Fringe Benefits Defined: A Fringe Benefit is something of value provided in connection with the performance of a service. IRC 61(a): gross income includes all income, including Fringe Benefits. Fringe Benefits are income unless specifically excluded by law. Tax Sheltered Annuities 9

10 Accountable Plan IRC 62 Method used to reimburse an employee for substantiated business expenses when expense allowance is used to cover expenses Attributable to employer s business activity Accountable Plan - IRC 62 Elements of an Accountable Plan Business Connection Substantiation Return of Excess Amounts All three elements must be present or the payments are included as wages and subject to withholding. Accountable Plan IRC 62 Fixed Date Method Periodic Statement Method February 11, 2014 Tax Sheltered Annuities 10

11 Types of Fringe Benefits Provided by Employer: Personal use of Employer s Vehicle Overnight Travel Per Diem/Lodging Meal Money Clothing Allowances Use of Government Provided Vehicle The VALUE of personal use of an Employer provided vehicle is income to the employee and includes commuting to and from work. There are three methods to determine value: 1. Cents- per -mile Rule ( (e)) 2. Commuting Value Rule ( (f)) 3. Lease Value Rule ( (d)) Cents Per Mile Rule 56.5 cents per mile X personal miles used (2015) To Qualify: Must have regular business (> 50% business) FMV of Vehicle < $16,000 ($17.3K-Trucks) Actually driven at least 10,000 miles per year Vehicle is driven primarily by employees (Total value of personal use is included in employee s wages) Tax Sheltered Annuities 11

12 Commuting Rule $3.00 Per day or $1.50 per one-way commute. To Qualify: Vehicle used for BUSINESS only. Employee is required to commute in vehicle. There is a written policy of No Personal Use (even if required to be on call ) (Total value of personal use is included in employee s wages) Lease Value Rule Determine the FMV of the Vehicle. Use annual lease values from PUB 15-B. If employer pays for the fuel, add the value of the fuel. (may use 5.5 cents per mile) Special Rules You must use either the Lease Value Rule or Cents-per-mile Rule if the employee is: An Elected Official Control Employee (Earns over $147,200 (for 2014) and has only de-minimis personal use) Tax Sheltered Annuities 12

13 Exempt Vehicles (Qualified Non-Personal Use Vehicles) Clearly Marked Police or Fire Vehicles Unmarked Police Cars * Ambulances or Hearses Large Trucks School Buses Non-Taxable Fringe Benefit: Meals and/or Lodging for the Convenience of Employer A Working Condition Fringe Benefit: Provided In Kind (food/housing) On the employer s premises (same) For the employer s convenience Required as a condition of employment (usually only housing) Other Non-Taxable Fringe Benefits- IRC 132 De minimis Fringe Benefits (ex: gift ham) Athletic Facilities (on premises) Qualified Transportation Expense (ex: parking) Working Condition (Employee Business Expense) Tax Sheltered Annuities 13

14 Achievement Awards Taxable Non-Taxable Nominal Education Benefits IRC Qualified Education Assistance Program IRC 132(d) - Working Condition Education Reimbursement IRC Qualified Tuition Reduction Clothing Allowances Required by employer, and Not suitable for everyday wear, or Protective Clothing Ex: Police and Firefighter s Uniforms Tax Sheltered Annuities 14

15 Employee owned Vehicle Allowances Federal Rate (56.5 cents/mile for 2015) Substantiation (written statement) Taxability (excess reimbursement) Per Diem: Meals & Lodging Reimburse Lodging, Meals, Incidentals Business Expenses incurred while in travel status Federal Rate Day Meals Moving Expenses An employee incurs qualified moving expenses New job 50 miles farther from residence Remain an employee for 39 weeks Tax Sheltered Annuities 15

16 Fringe Benefit Guide for Public Employers Fringe Benefit Guide for Public Employers Resources Publication 15, 15-A, 15-B Publication 463 Publication 535 Publication 963 (on line) Publication FSLG Specialist Tax Sheltered Annuities 16

17 Questions??? May 5, 2015 Give me a break! Alabama Contact Deishun Garmon-Robinson FSLG Specialist Tax Exempt and Government Entities Internal Revenue Service 1110 Montlimar Drive, Suite 300 Mobile, AL (251) Deishun.L.Robinson@irs.gov February 11, 2014 Tax Sheltered Annuities 17