21st Annual Health Sciences Tax Conference

Transcription

1 21st Annual Health Sciences Tax Conference Employment tax update, including medical resident FICA December 5, 2011

2 Disclaimer Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Page 2

3 Disclaimer Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client serving member of EYGM in the US. For more information about our organization, please visit This presentation is 2011 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are not necessarily those of Ernst & Young LLP. Page 3

4 Presenters David Ingber VP Finance Accounting & Financial Reporting Montefiore Medical Center Bronx, NY Kenneth Hausser Ernst & Young LLP 99 Wood Avenue South Iselin, NJ Larry Abowitz Ernst & Young LLP 99 Wood Avenue South Iselin, NJ Thomas Meyerer Ernst & Young LLP 1101 New York Avenue, NW Washington, D.C Page 4

5 Agenda employment tax update Medical resident FICA Background Pre-April 1, 2005 periods Post-March 31, 2005 periods Mayo case What s next? Ongoing processing/procedural issues Accounting issues Worker classification Voluntary Classification Settlement Program Hiring and retention incentives HIRE Act update Quality Stores update Page 5

6 Agenda employment tax update (cont.) Unemployment claims management Cell phones Same-sex marriage issues Employment tax examination tips Page 6

7 Medical resident FICA Page 7

8 Medical resident FICA Background Student Federal Insurance Contributions Act (FICA) exception Section 3121(b)(10) applies to: Service in employ of School, college or university (or supporting organization thereof) By a student regularly enrolled and attending classes Pre-April 1, 2005 Facts and circumstances determinations Many cases went both ways Post-March 31, 2005 Regulations took effect April 1, 2005 Excluded those working 40+ hours a week from student status Services are not incident to and for the purpose of pursuing a course of study. Page 8

9 Medical resident FICA (cont.) Mayo case District court ruled IRS regulation invalid. 8th Circuit held regulation valid. Supreme Court upheld 8th Circuit decision. Regulation is within Treasury Department authority to issue if it is not arbitrary, capricious or contrary to the statute. Regulation is within Treasury Department s authority to distinguish between working students and studying workers. Distinguishing based on hours worked is reasonable and is easily administrable, thereby avoiding uncertainty Therefore, under the regulations, effective April 1, 2005, medical residents are generally not considered students and do not qualify for student FICA exception. Page 9

10 Medical resident FICA (cont.) March 2010 IRS News Release Administrative determination that medical residents excepted from FICA tax under student exception for periods prior to date the new regulations took effect (April 1, 2005) Correspondence packages from IRS regarding perfection of claims Securing consents of residents Revising amounts of claims Page 10

11 Medical resident FICA (cont.) Refund processing current issues: IRS to process in staged phases Sample consents Detailed explanation of process where consent % is low Highest-paid residents (typically over $17,500 in quarter) Accreditation Council for Graduate Medical Education (ACGME) missing program numbers ACGME program names (e.g., research and pharmacology) Removing employee portions for individual claims Reviewing for duplicates, negative values, etc. resubmit SSN issues, such as starting with 000 or incomplete numbers Page 11

12 Medical resident FICA (cont.) Refund process update future phases Future phase to contemplate reasonableness: If reasonable, processing continues If not reasonable, full audit by IRS examiner New division at IRS to calculate interest and process checks Interest calculations not to be provided prior to check issuance Issue 1099s to residents Accounting issues: When/how to book receivable Payable to residents Page 12

13 Worker classification Page 13

14 New Voluntary Classification Settlement Program (VCSP) In September 2011, the IRS announced a new Voluntary Classification Settlement Program (VCSP), which allows taxpayers to prospectively reclassify workers as employees for federal employment tax purposes with limited liability. Under the new VCSP, businesses will no longer have to be under examination to be offered a chance to reclassify their workers as employees for federal employment tax purposes for future tax periods. The program offers limited federal employment tax liability for past nonemployee treatment. To participate in the VCSP, the taxpayer must meet certain eligibility criteria, apply to participate in the program and enter into a closing agreement with the IRS. Page 14

15 VCSP: who, what, when and why Who: for-profit businesses, tax-exempts and government entities What: file Form 8952, Application for Voluntary Classification Settlement Program When: now no sunset The VCSP requires the employer to prepare and file new Form 8952 with the IRS Ogden Service Center at least 60 days before the date the taxpayer wishes to begin treating the workers as employees. Why: certainty Page 15

16 IRS VCSP eligibility To be eligible to participate in the VCSP, the taxpayer must: Have consistently treated and be currently treating the workers as non-employees Have filed all Forms 1099 required for the workers at issue for the previous three calendar years Not currently be under examination by the IRS, Department of Labor (DOL) or any state government agency concerning worker classification Have no dispute with the IRS regarding whether the workers are employees or non-employees for purposes of federal employment tax Not have been previously examined by the IRS or the DOL regarding the classification of workers or if the taxpayer has been previously examined by the IRS or DOL for classification of workers, the taxpayer must have complied with all the results of the previous examination Page 16

17 The closing agreement The employer will pay 10% of the employment tax liability that may have been due on the compensation paid to the workers at issue for the most recent tax year, determined under the reduced rates of Internal Revenue Code (IRC) Section The taxpayer will not be liable for any interest or penalties on the amount and will not be subject to an employment tax audit regarding the classification of the workers for prior years. In exchange, the employer will agree to prospectively treat the workers as employees and extend the limitations period on assessment of employment taxes for three years. The taxpayer will have to pay in full the amount due under the closing agreement when it returns the signed closing agreement to the IRS. Page 17

18 Employee or independent contractor? The determination of whether a worker is an employee or an independent contractor is based upon common law factors, some of which vary by the type of industry in which the worker is employed. The common law factors examine the relationship of the parties and whether the service recipient has the right to demonstrate financial and behavioral control over the worker. Page 18

19 Worker classification employee vs. independent contractor Behavioral control factors (right to direct and control): When and where to do the work What equipment and tools to use What order or sequence to follow when doing the work The amount of training provided to the worker The right to control the work product, even if the work is done without instructions Page 19

20 Worker classification employee vs. independent contractor (cont.) Financial control factors (right to control the business aspects of the worker s job): The extent to which the worker has unreimbursed business expenses The extent of the worker s investment The extent to which the worker is available to work for others How the business pays the worker The extent to which the worker can realize a profit or loss Relationship of the parties factors: The terms of any written contracts describing the relationship Whether the business provides the worker with employee-type benefits The permanency of the relationship The extent to which the services are key to the business of the company Page 20

21 Safe harbor Section 530 of the Revenue Act of 1978 Applying these factors correctly is difficult. Therefore, Congress created a safe harbor for companies that can demonstrate a reasonable basis for treating workers as independent contractors. If the requirements of Section 530 are satisfied, no assessment will be made, and the business may choose to continue treating its workers as independent contractors. As long as the facts remain the same As long as the employer continues to meet the information reporting requirement Page 21

22 Safe harbor Section 530 of the Revenue Act of 1978 (cont.) To demonstrate that there was a reasonable basis for not treating the workers as employees under Section 530, a company can show that: It reasonably relied on a court case or a ruling issued to the company by the IRS. The business was audited by the IRS at a time when it treated similar workers as independent contractors and the IRS did not reclassify those workers as employees. For audits commenced after December 31, 1996, examination must have included an examination for employment tax purposes of whether the individual involved (or any other individual holding a substantially similar position) should be treated as an employee. A significant segment of industry of the business treated similar workers as independent contractors. Some other reasonable basis may be used. Example: reliance on the advice of attorney or accountant Page 22

23 Safe harbor Section 530 of the Revenue Act of 1978 (cont.) In addition to having a reasonable basis, a business needs to show both substantive consistency and reporting consistency. Reporting consistency: all federal tax returns (including Forms 1099 information returns) must have been filed by the business on a basis consistent with the business treatment of the individual as independent contractor. Substantive consistency: the business must have consistently treated similarly situated workers as independent contractors. If the business (or a predecessor) treated a similarly situated worker as an employee, there is no Section 530 relief. This test must be applied to the class of workers having substantially similar job responsibilities and working under substantially similar conditions (i.e., supervisors vs. workers being supervised). Page 23

24 Classification Settlement Program (CSP) If a taxpayer does not qualify for Section 530, and agrees with the IRS that the workers should be treated as employees, the taxpayer will be offered a CSP settlement. A taxpayer qualifies for a CSP offer if the taxpayer has filed all required Forms 1099 for the particular class of workers in question for the tax periods at issue. If the taxpayer timely filed Form 1099s but clearly fails the substantive consistency test or does not have a reasonable basis, the CSP offer provides for prospective compliance and agreement to an assessment equal to 100% at the IRC Section 3509 rates for the latest audit year. Page 24

25 Classification Settlement Program (CSP) (cont.) If the taxpayer timely filed Form 1099s and has a colorable argument that it meets the substantive consistency test and reasonable basis test, the CSP offer includes prospective compliance and agreement to an assessment equal to 25% for the latest audit year. Federal Unemployment Tax Act (FUTA) will be calculated separately and assessed for a full year at the full amount. A standard closing agreement is used for CSP. Page 25

26 VCSP factors to consider Evaluate potential exposure Determination of employee vs. independent contractor Financial exposure Potential relief under Section 530 Implications on employee benefits Potential state implications Consider options: No action Section 530 relief CSP VCSP Page 26

27 Worker classification other agencies and information sharing No state currently that has agreed to similar terms of VCSP Secretary of Labor and IRS MOU September 19 Initially includes 11 states Questionable Employment Tax Practice (QETP) program IRS and 37 states that currently share audit reclassifications with each other State DOL through direct notice to IRS SS-8 Unit MOUs across state agencies Unemployment, workers compensation, income tax and wage-hour law Page 27

28 Other state and local tax considerations Prospective vs. retroactive compliance Specific voluntary compliance programs Potential reporting mismatch of historical state vs. federal State audits both DOL and Department of Revenue (DOR) Loss of FUTA credit on state unemployment reclassifications Impact on state income tax provisions, apportionments and compensation deductions Potential for Statement of Financial Accounting Standards (SFAS) No. 5 State unemployment tax rate increase and related expense Page 28

29 Hiring and retention incentives Page 29

30 Hiring and retention tax incentives a retroactive opportunity Payroll tax exemption for employer s 6.2% share of Social Security tax on qualified hires who were previously unemployed for at least 60 days Income tax credit for new hires retained more than a year: Lesser of $1,000 or 6.2% of wages paid Page 30

31 What is the HIRE Act? The Hiring Incentives to Restore Employment (HIRE) Act provides a tax benefit to qualified employers by exempting their 6.2% share of employer social security payroll tax liability. Qualified employers defined: Public companies or private sector Section 501(a) employers Educational institutions Does not include the US government, state government or any political subdivision thereof Qualified employees defined: Are able to certify that they have not been employed for more than 40 hours for 60 days ending on their start date Began their employment after February 3, 2010 and before January 1, 2011 Are not replacing current employees, unless the employees leave voluntarily or are terminated for cause Are not individuals as described in IRC Section 51(i)(1) (such as the employer s relative) Page 31

32 HIRE Act Capturing the refund Attestation requirements: Each new hire should be surveyed to determine eligibility. Each qualified hire must complete a self-attestation (Form W-11) under penalties of perjury. Self-attestations require tracking, follow-up and scanning. The same W-11 also doubles as required documentation for the retention tax credit. 941-X Federal Insurance Contributions Act tax exemption must be correctly computed and filed. Form W-2C or amended W-2 must be filed for employees not included in 2010 W-2 calculation; Form W-3C must also be filed for employer. Page 32

33 Value of the HIRE Act Payroll tax exemption value: For qualified individuals, qualified employers are exempt from paying the employer s 6.2% share of the worker s Social Security tax on wages paid between February 4 and December 31, The exemption applies to covered wages up to $106,800 (maximum benefit per worker $6,621) and is available to both forprofit and tax-exempt employers. From Ernst & Young LLP s experience in the last year, the overall eligibility rate has been 47%. Ernst & Young LLP s experience in the health care industry indicates an eligibility rate of 43.5%. Page 33

34 Sample hospital benefit projection A hospital hiring 500 employees between February 3 and December 31 85% compliance based on historic retroactive screening compliance data 7,000 screened using a webscreening method 425 screened employees 43.5% eligibility rate based on past experience 185 eligible employees Average annual value of $900 yields an annual benefit of $166,500 Page 34

35 HIRE Act retention credit Qualified employers can claim the credit on their Form 990-T for qualified employees who: Were employed by the employer for no less than 52 consecutive weeks Received during the second 26 weeks of their employment at least 80% of the wages paid to them in the first 26 weeks The credit may be claimed for a retained worker for the first taxable year ending after March 18, 2010 (the date of enactment of the HIRE Act), for which the retained worker satisfies the 52 consecutive week requirement. Taxpayer with a 2010 fiscal year-end after February 3, 2010 may use its 2010 Form 990-T to claim the credit. Page 35

36 UBI HIRE Act retention credit As long as an exempt organization (EO) is a qualified employer, it can claim the retention credit on any retained HIRE Act-qualified employees to offset its unrelated business income (UBI) tax liability. Retention credit The retention credit is calculated on Form 5884-B, New Hire Retention Credit. The value of the retention credit as reported on Form 5884-B, Line 13 is reported on Form 3800, Line 1aa, New hire retention credit (Form 5884-B) as a general business credit. Form 3800, Line aa then flows up to Form 990-T, Part IV, Line 40-c, General Business Credit. Attach Form 3800, where the credit can be claimed against any UBI generated by the EO. Page 36

37 UBI HIRE Act retention credit (cont.) Consolidated rules: The consolidated return provisions of IRC Section 1501 do not apply to EOs filing Form 990-T, with the exception of EOs having title holding companies. Instead, EOs must report their UBI on Form 990-T on a separate entity basis. This means that an EO can only claim the retention credit for HIRE Act -qualified employees directly employed by that entity. Accordingly, even though an EO may belong to an affiliated group including other employers with HIRE Act-qualified employees, the EO can only offset its own UBI using the retention credit for wages paid to its own employees. Taxable subsidiary: If EO has a taxable subsidiary with qualified employees, credit could be claimed on Form Page 37

38 Quality Stores update February 2010 Michigan Federal District Court rejects CSX decision, reopens FICA tax on severance debate April 2010 protective refund claims filed for 2006 May 2010 IRS sends disallowance letters with reference to CSX decision Most companies continue to wait and see Two years from disallowance letter to file suit Case is still pending oral arguments October 2011 Continue to file protective claims Monitor dates of IRS disallowance letter(s) Monitor status of case Page 38

39 Unemployment claims management Page 39

40 How does unemployment tax impact an exempt organization? A not-for-profit entity may be treated as a for-profit entity or as a reimbursable employer for unemployment taxes. What does this mean? An exempt organization may be assigned a state unemployment tax rate and pay into the trust fund systems just the same as a for-profit entity. Or An exempt organization may choose to reimburse the state department of labor for any unemployment tax claims that are paid out against its account. Page 40

41 What is an unemployment tax claim? When an employee terminates for any reason, he or she may choose to file a claim against the former employer in order to draw unemployment payments while out of work. Unemployment claims filed with the state must be responded to in a short time frame. Some claims by former employees are valid when an employee terminates through no fault of the employee. When an employee is terminated for cause, the employee is not eligible to draw unemployment; however, the employer bears the burden of proof that the employee was terminated for cause. Page 41

42 What can your organization do to mitigate employment tax costs in today s environment? Reimbursing or experience-rated employer Statutory elections: most states offer statutory elections to Section 501(c)(3) entities to register, for state unemployment insurance (SUI) purposes only, as employers under the experience rating system. If the election is granted, the tax costs of the non-profit employer are socialized, which may lead to an overall reduction in tax liability. Page 42

43 What can your organization do to mitigate employment tax costs in today s environment? Below is an example of how the statutory election can be beneficial to employers: Health Co. LLC Experience-rated Year 1 Year 2 Year 3 State wage base $10,000 $10,000 $10,000 Experience rating 2.70% 2.70% 1.80% Total employees 7,500 8,500 7,900 Tax liability $2,025,000 $2,295,000 $1,422,000 Health Co. LLC Self-financing Year 1 Year 2 Year 3 Benefit charge liability $2,000,000 $ 1,500,000 $ 3,000,000 Page 43

44 What can your organization do to mitigate employment tax costs in today s environment? In this example, the three-year tax liability as an experience-rated employer was $5,742,000, while the liability as a self-financing employer over the same period was $6,500,000. Accordingly, had the employer used a statutory election, it would have realized a $758,000 cost reduction. Page 44

45 What can your organization do to mitigate employment tax costs in today s environment? Timing the election can be critical. Factors to consider include: Historical unemployment benefit collections Vested base period claims which add trailing costs Projected rotating workforces that collect unemployment claims Planned layoffs, reductions in the workforce State unemployment insurance wage bases and tax rates The goal is to calculate an employer s break-even point (i.e., where the annual benefit charge liability exceeds the employer s potential liability under the experience rating system). Page 45

46 Unemployment claims administration points to consider Validates accurate claim administration and benefit charging Provides comprehensive unemployment payment funding evaluations Provides continuous statistical feedback on success rate Pinpoints areas of improvement to help control costs Provides complete and concise education on unemployment that reinforces consistent and documented application of employee policies and practices Frees up HR and/or location supervision and management to focus on core competencies and more strategic initiatives Page 46

47 Cell phones Page 47

48 Cell phones IRS Notice Issued September 19, 2011 Cell phones and similar communications equipment no longer listed property for years beginning after 12/31/2009 in Section 280F(d)(4) Listed property has heightened substantiation requirements of Section 274(d). If listed property fails to meet substantiation requirements, could be automatic excess benefit transaction under Section 4958 under prior law for disqualified persons. Page 48

49 Cell phones (cont.) IRS Notice Value of employer-provided cell phone includable in income unless otherwise excludable Excludable if provided primarily for non-compensatory business reasons Substantial reasons other than compensation for providing cell phone Examples: Need to contact at all times for work-related emergencies Need for availability to speak with clients and co-workers when away from the office Promoting morale or goodwill of employees is not non-compensatory. Page 49

50 Cell phones (cont.) IRS Notice Working condition fringe benefit Section 132(d) Item would be deductible by employee under Sections 162 or 167 if paid for by employee De minimis fringe benefit Section 132(e) Property or service the value of which is so small as to make accounting for it unreasonable or administratively impracticable If cell phone provided primarily for non-compensatory business reasons, IRS will treat the use related to employer s business (i.e., business use) as a working condition fringe. Personal use treated as de minimis fringe But if not provided primarily for non-compensatory business reasons, IRS will treat as taxable with burden on employee to establish business use. Page 50

51 Cell phones (cont.) IRS Notice What if reimbursement is provided for cell phone usage rather than the cell phone itself? Field Guidance memorandum issued with indicates similar treatment to cell phone provided. Plan is reasonably related to needs of employer s business. Reimbursement is reasonably calculated. Reimbursement is not a substitute for regular wages. Certain arrangements may not qualify. Example: when employee has international plan when only working with domestic clients and offices Large reimbursements Unsubstantiated cash allowances with no substantiation of expense Page 51

52 Cell phones (cont.) What are similar telecommunications devices for purposes of Notice ? BlackBerrys? iphones? ipads? Kindles? Page 52

53 Same-sex marriage issues Page 53

54 Same-sex marriage For federal withholding and employment tax purposes No recognition of status Cannot claim married filing jointly status Cannot file joint return No spousal estate or gift tax deduction Generally each spouse treated as single Value of fringe benefits provided to a same-sex partner of the employee is treated as wages unless the same-sex partner is a dependent of the employee Page 54

55 Same-sex marriage (cont.) State/local income and unemployment tax rules vary. Some states recognize same-sex marriage as a lawful marriage for income tax (or unemployment insurance) purposes (e.g., New York). Some states recognize same-sex marriage as lawful but not for income tax purposes (e.g., Illinois). Some states exclude domestic partner benefits from taxable wages whether or not the couple is married. Page 55

56 Same-sex marriage Montefiore approach On June 24, 2011, New York became the largest state to allow same-sex marriage. Law went into effect 30 days later. In 1991, Montefiore Medical Center allowed domestic partners of employees to be considered family members and thus eligible for medical and dental coverage as a spouse. Page 56

57 Domestic partners Qualified domestic partner an individual of the same sex with whom you reside, provided that you and that individual: Are unable to marry because of laws prohibiting marriage to persons of the same sex in the state of legal residence Are not legally married to any other person Are the sole domestic partners of each other Live together, share the common necessities of life and are responsible for each other s common welfare, including financial independence Are the age of consent in your sate of legal residence and competent to enter into a contract Are registered as domestic partners in accordance with any state or local government domestic partnership ordinance or law Have filed an Affidavit of Domestic Partnership to Montefiore s HR-Benefits Office and submitted the required documentation to establish eligibility Page 57 15

58 Employment tax examination tips Page 58

59 Federal employment tax overview Employment tax audit overview and process Federal employment tax technical Worker classification analysis Merger/acquisitions and payroll consolidation Refunds of tax, penalty and interest Inbound and outbound issues Voluntary disclosures to IRS regarding federal employment tax issues Page 59

60 Employment tax audits overview Employment tax exam is separate and distinct from income tax exam. Employment tax exam involves a separate set of returns. Income tax exam can close without the employment tax exam closing. A statutory notice of deficiency (SNOD) is not required in an employment tax exam. Employment tax examiner can simply just assess tax. Exception: SNOD is required for assessment arising from worker classification issues. Page 60

61 Employment tax audits process Case coordinator submits referral to employment tax specialist group. Employment tax agent is assigned. Employment tax agent performs site visit and holds meeting with case coordinator. Employment tax agent is provided with Forms 940 and 941. Employment tax agent obtains transcripts to verify information on the Forms 940 and 941. Employment tax agent reviews trial balance, corporate minutes and other pertinent information. Page 61

62 Employment tax audits process (cont.) Employment tax agent performs analysis of general ledger, possibly with the aid of a computer audit specialist (CAS). Employment tax agent requests Form W-2 analysis from CAS. Analysis verifies whether the correct amount of employment taxes were withheld. Employment tax agent requests Form 1099 analysis from CAS. Page 62

63 Employment tax audits process (cont.) Employment tax agent requests W-2/1099 correlation analysis from CAS. Analysis looks to see whether any employees received both a Form W-2 and a Form Employment tax agent prepares information document requests (IDRs). Includes mandatory IDR for non-qualified stock options Page 63

64 Federal employment tax technical Fringe benefits: Personal use of employer-provided autos Prizes and awards Personal use of employer aircraft IRS Cell Phone Policy/Notice Meals and lodging Local transportation Loans Moving expense reimbursement Page 64

65 Federal and state employment tax technical Employee incentives: Stock options, non-qualified and incentive stock options Restricted stock Employee stock purchase plan (ESPP) Tax deposits and reporting Amended returns to correct W-2 forms and pay additional taxes Assistance with reporting issues on Form W-2 Other Page 65

66 Worker classification IRS audits of independent contractors Continues to be a priority issue for IRS employment tax exams Coordination and sharing of information by agencies State unemployment insurance worker classification audits DOL worker classification analysis Review existing documents and interview independent contractors to assist in making a determination of the status of the individual Consider P.L. Section 530 safe harbor (not applicable in many states) Review the 20 common law factors with respect to existing employment contracts Page 66

67 Merger/acquisition payroll consolidation Successor-in-interest for FICA/FUTA External and internal merger situations: Integration of payroll systems: Outsourced to third parties In-house payroll function Coordinating with other departments connected to payroll: Tax HR Regulatory Page 67

68 Merger/acquisition payroll consolidation (cont.) Simplify payroll reporting: Authorized agent election Outsource Adjustments may affect other non-payroll reporting: Corporate tax return (deduction) Benefit plans (change in amount of compensation that may affect 401(k) plan testing) Page 68

69 Refunds of tax, penalty and interest FICA restart with successor-in-interest IRS account analysis Traditional account analysis and recovery Interest netting study (IRC Section 6621) Interest analysis IRS exam Tax provision Financial Accounting Standards Board (FASB) Interpretation No. 48 IRS account checkup Page 69

70 Global mobility: US inbound issues Page 70 Short-term business visitor Short-term assignment/work in US Treaty exemption process Visa status as a legal immigration issue Ernst & Young LLP can t opine on visa status; however, the visa status affects analysis of who is employer and wage reporting and withholding analysis. US resident vs. non-resident alien status FICA taxes Other Who is subject? Corrections with Social Security Administration Pension 401(k) Health insurance

71 Global mobility: outbound issues Forms 673 and W-4 compliance Waiver of US withholding for US citizens Section 3401(a)(A)(8)(ii) Green card holders No waiver of withholding W-4 analysis State reporting/withholding for US citizens/aliens working outside US State sourcing of State Unemployment Tax Act (SUTA) wages: US citizens working outside US Page 71

72 Global mobility: inbound/outbound issues US and state income tax withholding Totalization agreements US FUTA and SUTA Capture global remuneration Who is the employer? US shadow payroll if paid from home country Split contract vs. split pay delivery Form W-4 compliance Page 72

73 Global mobility: inbound/outbound issues (cont.) US-sourced compensation W-2 withholding and reporting Stock options Deferred compensation Tax equalization settlement payments Due to employee: wages when paid Due from employee: claim of right employment tax adjustments Write-off of unpaid tax equalizations Page 73

74 Voluntary disclosures to the IRS Voluntary disclosures Typically, employer will complete IRS voluntary disclosure agreement (VDA) then proceed with state VDA. IRS will typically work with our team to resolve unreported and unpaid employment tax liabilities without penalty and interest and often without producing W-2 or W-2C forms. IRS will provide a formal agreement. IRS will work with our team to resolve issues that are out of statute, if necessary. Many states will waive penalty but do not have the Section 6205 interest-free provision. Who benefits from voluntary disclosure? Employers with foreign (alien) employees working in the US without social security numbers (accidental expatriates) Employers needing to make small corrections to a large number of employee s W-2 forms Page 74

75 Thank you! Questions? Page 75