IRS EMPLOYMENT TAX ISSUES

Transcription

1 IRS EMPLOYMENT TAX ISSUES vgfoa Conference October 22, 2009 Christina Chang Federal State & Local Government

2 Topics: Current Issues ARRA (COBRA) Subsidy Reporting Form 94X Corrections Military Differential Pay Common Compliance Issues Employee or Independent Contractor Form 1099-Misc Requirements & Filing Fringe Benefits Future Requirement Required Withholding on Government Payments

3 COBRA PREMIUM ASSISTANCE

4 COBRA Premium Assistance American Recovery and Reinvestment Act of 2009 (ARRA) Applies to group health plans Includes medical, dental and vision plans Does not include flexible spending arrangements

5 COBRA Premium Assistance con t COBRA subsidy reimbursed via form 941 Credit is claimed on line 12 Overpayment can be applied to next return, or requested as a refund COBRA credit will not affect future deposit frequency computation Credit can be claimed in quarter provided or a later quarter in the same calendar year

6 COVERAGE PERIOD Begins no earlier than February 17, 2009 (date of enactment) Continues until the earliest of: First date individual is eligible for other coverage or Medicare coverage Nine months after first day of first month for which premium reduction applies Date individual no longer eligible for COBRA

7 Involuntary Termination IRS definition: A severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment where the employee was willing and able to continue performing services.

8 FORM 94X: CORRECTING EMPLOYMENT TAXES

9 941 Corrections Reporting corrections 941-C no longer applicable after 12/31/ X Beginning 01/01/2009 Will also apply to 943, 944, 945 and CT-1

10 PROCESS CHANGES Corrections will be made to both the prior period wages and liability Current period liability will not be affected. Form 843 will no longer be used by employers to claim refunds or abatements of employment taxes Certifications specific to adjustment process and claim process

11 Due date Form 941-X Underreported- By due date of return for the return period error discovered Overreported- Soon after error discovered Payment Must be made when return filed to qualify for interest free under IRC Sec Must be made when return filed to avoid deposit penalties under IRC Sec. 6656

12 RESOURCES Treasury Decision 9405 (REG ), Employment Tax Adjustments, 73 FR 37371, July 1, Correcting Employment Taxes ml Tax Professionals can call the IRS s Practitioner s Priority Service at or business owners can call (TTY/TDD for the hearing impaired )

13 Differential Wage Payment to Active Duty Members of the Rev. Rul IRC 3401(h) Subject to income tax withholding Uniformed Services No longer reported in box 3 Form MISC.

14 Questions?

15 Employee or Independent Contractor???

16 EMPLOYEE DEFINED: IRC 3121(d) and Reg (d)-1 Any individual under usual common law rules

17 EMPLOYEE (Continued) Any individual who performs services that are included under an agreement entered into under Section 218 of Social Security Act Entered into between Governmental Agency and the Social Security Administration

18 COMMON LAW STANDARD Employer-employee relationship exists when the business for which the services are performed has the right to direct and control the worker who performs the services not only as to what work shall be done but also how work shall be done

19 Categories of Evidence Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral Control Financial Control Relationship of the Parties

20 BEHAVIORAL CONTROL: IF the firm provides instructions: on how to do the job, when and where to do the work, training etc., the worker is most likely an employee.

21 FINANCIAL CONTROL: If the firm provides an office, all office supplies, computer other business equipment to the worker, the worker is an employee.

22 RELATIONSHIP OF THE PARTIES: If the firm provides benefits: health insurance, life insurance, retirement benefits, 40l(k) plan, 403(b) the worker is an employee.

23 Elected And Appointed Officials Employee Position established by law Duties defined by statute Performs duties as a public official Responsible to the public Paid out of governmental funds

24 Elected And Appointed Officials (Continued) Examples of Elected and Appointed Officials Mayor City Attorney Judge or Justice of the Peace Building Inspector Board Members Road Commissioner Animal Control Officer

25 COMMON MISCONCEPTIONS: Only full time workers must be employees- FALSE EMPLOYEES CAN BE: Part-time workers Temporary workers Probationary period Workers who say they are Independent Contractors

26 INDEPENDENT CONTRACTOR Offers services to public Operates own business Bills for services Doesn t have to personally perform work

27 Independent Contractor vs. Employee Publication 1779 Provides factors used to help determine worker status as either an independent contractor or an employee Publication 1976 Contains information on Section 530 Relief SS-8 Can be filed by firm or worker with Internal Revenue Service to determine worker status

28 Form 1099-Misc. Requirements and Filing

29 Form 1099-MISC Box 3 - Other Income Other income not reportable in one of the other boxes of the form Prizes and awards not for services performed Various damage payments Deceased employee s wages- See Instructions for Forms 1099 for additional items to be reported

30 Form 1099-MISC Box 6 Medical and Healthcare Payments Report payments to individuals, partnerships, and corporations Medical payments include doctor fees, drug testing, lab fees, physical therapy, etc. * Do not report payments to pharmacies or tax exempt hospitals

31 Form 1099-MISC.- Box 7 Non-Employee Compensation Payment for services of a person who is not your employee (may include parts or materials in some instances) Fee splits between professionals Professional service fees ex. attorneys (including corporations), architects and accountants Prizes and awards for services performed as a nonemployee

32 Form 1099-MISC.- Box 14 Gross Proceeds Paid to an Attorney Defining Gross Proceeds Payments made to an attorney as part of a legal settlement or court order May be issued in the names of the attorney and the client May include an amount for the attorney s services

33 Reporting Gross Proceeds If you do not pay the attorney fees separately, report all of gross proceeds in Box 14 If you pay the attorney fees separate from the payment to the payee report as follows: Report the attorney fee in Box 7 Report gross proceeds in Box 3 to claimant (separate 1099-MISC.)

34 Never assume an entity is incorporated! LC Limited Company LLC Limited Liability Company LP Limited Partnership LLP Limited Liability Partnership

35 Fringe Benefits

36 FRINGE BENEFITS: WHAT IS A FRINGE BENEFIT? ANY PROPERTY, SERVICE OR CASH (Other than Salary, Provided by Employer) TAXABLE UNLESS EXCLUDED SPECIFICALLY BY LAW Example: Medical Premiums IRC 106

37 ACCOUNTABLE PLAN Allowance or reimbursement plan where amounts can be non-taxable IRC Section 62(c) Three requirements for a qualified Accountable Plan

38 THREE RULES: Business Connection Adequate Accounting Excess returned on a timely basis

39 NON-ACCOUNTABLE PLAN: DOES NOT MEET ALL 3 REQUIREMENTS FOR AN ACCOUNTABLE PLAN BENEFIT IS FULLY TAXABLE WHEN PAID

40 Non-Taxable Fringe Benefits: No additional cost service Qualified employee discounts Working condition fringe De minimis fringe Qualified transportation expenses Qualified Moving Expense Reimbursements

41 Examples of De Minimis Fringe Benefits Occasional (infrequent) not routine Personal use of photocopier ( with restrictions) Group meals, employee picnics Local telephone calls Coffee, doughnuts, or soft drinks Flowers or fruit for special circumstances Commuting use of employer s car if no more than once per month

42 Cell Phones Modernize Our Bookkeeping In the Law for Employee's Cell Phone Act of 2008 Notice Solicits comments on proposals to simplify accounting Deadline to respond- September 4, 2009

43 Cell Phones Excluded from the items treated as Listed Property Employees are still required to account for business and personal use. If substantiation requirements are not met, all use is included in the wages of the employee.

44 AWARDS ARE TAXABLE CASH PRIZES OR AWARDS are always taxable PERFORMANCE AWARDS are always taxable NON-CASH use Fair Market Value

45 AWARDS EXCEPTIONS: Certain Awards transferred to Charities Pulitzer, Nobel Peace Prize Certain Employee Achievement Awards Length of Service, Safety - Not Cash Nominal Holiday/Special Occasion Awards Coffee mugs, plagues, etc.

46 GIFT CARDS = Taxable Fringe Technical Advice Memorandum To be excludable, the fringe must be Small in value Infrequent Administratively impracticable to oversee Gift coupon operates in the same way as gift certificate

47 Work Clothes, Uniform Allowances and Reimbursements Excluded if: Specifically required as a condition of employment AND Not worn or adaptable to general usage as ordinary clothing Rules of Accountable Plan must be met

48 Questions?

49 REQUIRED WITHHOLDING ON GOVERNMENT PAYMENTS IRC SECTION 3402(t)

50 Tax Increase Prevention and Reconciliation Act of 2005 PL added subsection 3402(t) to Internal Revenue Code Generally requires 3% income tax withholding by government entities on payments for property and services Originally applied to payments made after December 31, 2010

51 American Recovery and Reinvestment Act of 2009 Delayed implementation for one year applies to payments after December 31, 2011

52 AFFECTED GOVERNMENT ENTITIES All U.S. Government agencies All state governments (including the District of Columbia, but excluding Indian tribal governments) All subdivisions or instrumentalities of state government unless it makes annual payments of less than $100 million.

53 RECIPIENTS Payments to all of the following are subject to the 3% withholding: Individuals Trusts and Estates Partnerships Associations Corporations Requirement applies to payment in any form (cash, check, credit card, etc.)

54 $100 MILLION EXCEPTION Local governments are not subject to the requirements if total payments are less than $100 million Lookback period consider all payments (other than exceptions above) made for second preceding calendar year Example: Lookback period for 2012 is Consider all payments made for calendar year 2010 to determine whether withholding is required in 2012.

55 PAYMENT THRESHOLD All governmental entities (including Federal and state agencies) are not required to withhold on payments of less than $10,000. Anti-abuse rule withholding is required if a payment is divided solely for the purpose of avoiding the withholding requirements. Payments under $10,000 not subject to withholding are counted in determining whether total payments exceed $100 million.

56 HOW TO REPORT Withholding required at the time of payment Withheld amounts are shown on Form 945, Annual Return of Withheld Income Tax Form 945 deposit rules apply Withholding may not be used as a credit against employment or other taxes of payee Withholding reported to recipients on Form 1099-MISC, Miscellaneous Income

57 FAILURE TO WITHHOLD In general, a government required to withhold under this provision that fails to do so becomes liable for the tax

58 Questions?

59 FSLG Specialists Christina Chang-Mid Atlantic Contacts To ask a question us at tege.ask.fslg@irs.gov

60 IRS CONTACTS: IRS INFORMATION IRS PUBLICATIONS