C.O.E. CONTINUING EDUCATION

Transcription

1 Continuing legal or professional services expert licensed in your state. Page 1 of 55 Ohio Taxation, Rules and Regulations Course Outline: 1. Segment 1: Ohio Taxation a. Tax Deductions That Beauty Industry Professionals Can Claim i. Licensing ii. Rents iii. Supplies iv. Insurance v. Tip Income Responsibilities for the Employer or Booth Renter b. Self-Employment Tax Deductions for Beauty Service Professionals i. Equipment ii. Clothing iii. License and Education Expenses iv. Professional Dues and Expenses v. Communication and Miscellaneous Expenses vi. Logging Expenses for Self-Employment Tax Records c Self-Employment Rules & Deductions i Rules ii. Form 1040 Schedule C iii. Business Expense Deductions iv. Additional Deductions v. How to Deduct Employment Expenses on Taxes d. Ohio Business Tax Regulations i. Commercial Activity Tax ii. Employer Withholding Taxes iii. Ohio Annual Report iv. Corrections v. Employer s Liability for Withheld Tax vi. Interest and Penalties vii. What Records to Keep viii. Personal Care Services Tax Compliance Guide ix. Use Tax and Businesses x. Ohio Small Business Tax Deduction 2. Segment 2: Ohio State Board of Cosmetology Rules and Regulations: Chapter 4713 legal or professional services expert licensed in your state. 1

2 Continuing legal or professional services expert licensed in your state. Page 2 of 55 a. Chapter Sanitation; Communicable Diseases b. Chapter Beauty and Nail Salon Licensing c. Chapter Continuing Education d. Summary Conclusion i. Who is an employee ii. Shop Owner/Employer Tax Responsibilities Course Objectives: Upon the completion of this course, you will be able to: Identify tax deductions that beauty industry professionals are allowed to claim, Comprehend the components of self-employment tax deductions for beauty service professionals, Review the regulations associated with the 1099 Self-Employment Rules and Deductions. Outline Ohio Business Tax Regulations necessary to remain in compliance with tax regulations relating to Personal Care Services. Segment 1: Ohio Taxation Introduction As a salon owner, it s very important to be familiar with your state tax laws. Remaining in compliance with tax regulations is the key to maintaining healthy financial management of your business. Hair, nail and skin care services saw major growth spurts over the previous decade. After being identified as a cash intensive industry, salon businesses are now subject to renewed auditing techniques by the Internal Revenue Service (IRS). This course will provide you with a guideline for remaining in compliance with Ohio Tax Regulations and emphasize tips on good record keeping techniques. Tax Deductions That Beauty Industry Professionals Can Claim Beauty Industry Professionals who own salons are small business owners and must track all income and expenses for tax purposes. Operators who rent booth space are also considered independent contractors and not employees of a salon. As independent contractors, Beauty Industry Professionals renting booth space are also responsible for business taxes. Though many tax deductions are available to small business owners, some deductions are common to all Beauty Industry Professionals, such as licensing fees, booth space rental, supplies and office expenses, and business related insurance expenses. legal or professional services expert licensed in your state. 2

3 Continuing legal or professional services expert licensed in your state. Page 3 of 55 Licensing Small business owners may deduct the costs of professional licensing and education expenses to maintain that licensing. Individual states also require continuing education to maintain active Beauty Industry Professionals licenses. The IRS allows independent contractors to deduct costs of education required to maintain an active license on an income tax return. Keep records of all licensing and required education expenses, including original receipts and invoices as well as a log of courses, dates and locations. Rents Just as salon owners pay rent for their business space, as an independent Beauty Industry Professionals you are required to pay regular rent for your work space. This rent is deductible as a business expense on your tax return. Keep copies of your booth rental agreement and receipts for rents paid to the salon owner as documentation of your rents paid for tax purposes. Supplies Independent Beauty Industry Professionals must maintain their own cache of combs, shampoo, conditioner and hair gels. You can deduct these expenses against your income received to reduce your tax liability. Related deductible business expenses include appointment books, pens, pencils, business cards and magazines for customers. Insurance Many professionals carry liability or similar business insurance in their practices. Beauty Industry Professionals may be required to obtain business liability insurance as a prerequisite for renting booth space at a salon. This expense is directly deductible as a business expenses. Talk with your tax advisor regarding other insurance costs, such as health insurance premiums, that may be deductible in your business. Tip Income Responsibilities for the Employer or Booth Renter Tips are considered taxable income and are subject to Federal income taxes. Tips that your employee receives from customers are generally subject to withholding. Your employees must report tips they receive to you by the 10th of the month after the month that the tips are received. The report should include tips that you paid over to the employee from customers that added the tip to their charged or debit card receipt and tips that the employee received directly from customers. You must collect income tax, employee social security tax, and employee Medicare tax on the employee s tips. For more information on the taxation of tips, see Publication 15, Circular E Employer s Tax Guide, available free from the IRS. legal or professional services expert licensed in your state. 3

4 Continuing legal or professional services expert licensed in your state. Page 4 of 55 Self-Employment Tax Deductions for Beauty Service Professionals According to the U.S. Bureau of Labor Statistics, the personal appearance industry contains a significant percentage of self-employed individuals. Roughly 44 percent of barbers, Beauty Industry Professionals and other personal appearance workers, including stylists, were self-employed in Self-employed hair stylists are eligible for tax deductions that employed stylists cannot take. Taking these deductions greatly relieves the tax burden a self-employed stylist faces and makes it easier for her to compete in the marketplace. Equipment The Internal Revenue Service allows all self-employed individuals, including hair stylists, to deduct items essential to the operation of their business. For stylists, this regulation means you can deduct items like your scissors, blow dryers, shampoo, spritz bottles, dyes and other chemicals, such as peroxide, and protective aprons and drapes. If you purchase your own chair, that's deductible, too. Clothing If you wear certain clothes or accessories while you work that you don't wear anywhere else, these are considered part of your work uniform and are tax deductible. For example, you may use hair clips to keep your hair out of your face while you work, wear certain blouses that you don't mind getting stained or wear orthopedic sneakers so your feet don't hurt from standing all day as you style. If you aren't sure what constitutes a uniform in the styling industry, ask other stylists what they usually wear on the job. License and Education Expenses Beauty Industry Professionals, including stylists, are regulated workers, meaning that all states require them to be licensed. Because you cannot work unless you get this license, you can deduct all the expenses related to getting and maintaining your license. This includes the expenses you have for cosmetology classes and completing state-required apprenticeship training. Professional Dues and Expenses As a professional appearance worker, you must keep up with the standards in your industry to do your job well. You thus can deduct any expenses that allow you to learn about and participate in your field. For example, you may deduct the cost of subscriptions to major magazines such as "American Salon" and "Celebrity Hairstyles." If you are part of a union, dues for membership also are deductible. The cost of going to seminars and conferences counts, as well. legal or professional services expert licensed in your state. 4

5 Continuing legal or professional services expert licensed in your state. Page 5 of 55 Communication and Miscellaneous Expenses Similar to all other self-employed individuals, you can deduct communication and advertising expenses, including the cost of a second phone line used only for business or the cost of keeping your business website operational. You also may deduct the business portion of Internet costs you have. You may be able to deduct travel expenses if you have an office outside of your home to which you go to work on a regular basis, as well as the expenses related to meeting with current and potential clients. Insurance premiums, business utilities, Social Security and retirement expenses are also deductible. Legal fees are another deduction option, as are computers and software used to operate or support your salon's business. Logging Expenses for Self Employment Tax Records If you're an independent contractor or sole proprietor, you can deduct a variety of business expenses. For example, you may be able to write off business travel, advertising, workrelated driving, training seminars, office furniture and employee salaries on Schedule C, the tax form for self-employment income. This not only cuts your income taxes but the amount you pay in self-employment tax, which as of 2011 runs 13.3 percent. If the IRS ever asks you to prove your expenses, however, you'll need documentation showing you actually spent the money. Step 1 Read the IRS guidelines and learn what constitute acceptable business expenses (see the Resource section). If you intend to deduct business mileage, for example, travel between your home and your office isn't deductible. If you have a home office, on the other hand, travel from your house to a client's office is deductible. Step 2 Buy a logbook or a software bookkeeping program to keep track of your expenses. Any system, even the accounting pages at the back of a day planner, will do if you include the necessary information. If the IRS peers into your files, it will want to know how much you spent; what you spent it on; who you paid; and when you spent the money. Step 3 Transfer information from any business receipts or bills you receive into your logbook. If you can't claim the entire amount -- say you took a trip that was 60 percent business, 40 percent fun -- make a note of the total amount and how much you can write off. Step 4 legal or professional services expert licensed in your state. 5

6 Continuing legal or professional services expert licensed in your state. Page 6 of 55 File your receipts and bills after you've entered the information. The IRS may ask for proof of the expenses, in addition to your written claims. Tips There are ways to simplify your record keeping. If you have a credit card you use only for business, that provides you with a record of expenses without having to enter them in the logbook every day. If you run a regular sales route every week, you can claim that amount of mileage every week you work the route, without writing down the odometer readings from your vehicle. In most cases, the IRS has a 3-year statute of limitations on audits after you file your return, so you can dispose of your records after that time. If you buy an asset, however, hang on to the records until you sell it, to determine the gain or loss Self-Employment Rules & Deductions The Internal Revenue Service imposes different rules and allows for different deductions for self-employed individuals than for regular employees. IRS Form 1099 is the tax form used by companies to report all payments made to self-employed independent contractors. Tax rules can be tricky for self-employed individuals, especially for those filing selfemployment taxes for the first time. Reviewing a list of self-employment rules and deductions can shed some light on self-employment taxes Rules Employers are required to submit a copy of IRS Form 1099 at tax time for each independent contractor they paid more than $600 during the year. The IRS imposes strict rules regarding which workers qualify as private contractors and which as employees. The IRS can re-classify employees and re-calculate a company's tax bill if it finds the company has ignored these guidelines. According to the IRS, if a company has no right or ability to control the way in which a worker performs tasks, the worker is likely an independent contractor. If a company has no control over the business side of a worker's job, including factors such as how the worker is paid, how the worker obtains tools and which expenses are reimbursed, then the worker is likely a contractor. If there are no employee benefits contracts in place and the worker is free to perform work for other clients or terminate the relationship at any time, the worker is likely independent. If all three of these criteria are met, the IRS automatically considers a worker to be an independent contractor. legal or professional services expert licensed in your state. 6

7 Continuing legal or professional services expert licensed in your state. Page 7 of 55 Form 1040 Schedule C Self-employed individuals paid on a 1099 must submit Form 1040 along with Schedule C for their personal income taxes. Form 1040 is the regular personal income tax form. Schedule C accounts for personal business income. Schedule C essentially expands upon line 12 of Form 1040, providing additional workspace to calculate a figure for business income or loss. Business Expense Deductions Self-employed individuals are allowed to deduct a wide range of regular business expenses from their taxable income. This provides a distinct advantage over regular employees, who are allowed a smaller number of possible deductions. Regular business expenses include things that cannot be confused as personal expenses, such as the direct cost of materials or inventory, legal fees and office space located outside of the home. Other business expenses such as payroll, computers and office furniture can be deducted as well. Additional Deductions The IRS allows self-employed individuals to make additional deductions for expenses that blur the lines between business and personal costs. Home-based entrepreneurs, for example, can deduct a portion of their rent and utilities based on the size of their home offices. Self-employed individuals can also deduct a certain amount for things such as gasoline, office supplies, telephone expenses, home insurance premiums and entertainment expenses for business purposes. How to Deduct Employment Expenses on Taxes A tax deduction lowers your tax obligation by reducing your taxable income. Businesses can deduct the necessary expenses associated with conducting business. However, it's not just the self-employed who receive this tax break. If you incur necessary expenses during your employment, you can deduct them from your income taxes by itemizing your deductions on IRS form Step 1 Gather all of the expenses you incurred and paid yourself while acting as an employee. Divide the expenses into five categories: vehicle expenses; parking fees and tolls; overnight expenses while traveling, such as lodging and plane tickets; and meals and entertainment. Total each category's expenses. Step 2 legal or professional services expert licensed in your state. 7

8 Continuing legal or professional services expert licensed in your state. Page 8 of 55 Total the amount of reimbursement for these expenses you received from your employer. Step 3 Download IRS form 2106 from the IRS's website (See Resources). Fill out the form using the information you calculated in Steps 1 and 2. Step 4 Finish filling out the form and attach it to the rest of your tax return. Note: Remember that the IRS requires that you incur these expenses while performing work as an employee and you notify your employer so he's aware you're deducting these expenses. If you don't do these things, your expenses are not tax deductible. Warning You do not need the receipts and other proof of purchase records to file your employee business expense deduction. However, you must keep this information in your tax records in case the IRS audits your return and requests additional information. Ohio Business Tax Regulations Commercial Activity Tax The commercial activity tax (CAT) is an annual tax imposed on the privilege of doing business in Ohio, measured by gross receipts from business activities in Ohio. Businesses with Ohio taxable gross receipts of $150,000 or more per calendar year must register for the CAT, file all the applicable returns, and make all corresponding payments. A variety of resources on the CAT may be found below. Important Notices for CAT Taxpayers R.C was amended in the most recent budget bill to allow the Department to require annual CAT taxpayers to file and pay electronically for returns filed on or after Jan. 1, Taxpayers may file and pay electronically through the Ohio Business Gateway at business.ohio.gov. Alternatively, annual taxpayers may utilize TeleFile as a means for filing and paying the annual CAT return electronically beginning in April For tax periods beginning on Jan. 1, 2014 and thereafter, the annual minimum tax (AMT) will become a tiered structure, and taxpayers will pay an amount that corresponds with legal or professional services expert licensed in your state. 8

9 Continuing legal or professional services expert licensed in your state. Page 9 of 55 their overall commercial activity. The taxpayer will utilize its previous calendar year s taxable gross receipts to determine the current year s AMT. For more information, please refer to information release CAT Commercial Activity Tax: Annual Minimum Tax Tiered Structure- Issued October, About the CAT Taxpayers The commercial activity tax (CAT) was enacted in House Bill 66, which was passed by the 126th General Assembly. The CAT first applies for taxable gross receipts received on and after July 1, The CAT is an annual privilege tax measured by gross receipts on business activities in this state. This tax applies to all types of businesses: e.g., retailers, service providers (such as lawyers, accountants, and doctors), manufacturers, and other types of businesses. The CAT also applies whether the business is located in this state or is located outside of this state if the taxpayer has enough business contacts with this state. The CAT applies to all entities regardless of form, (e.g., sole proprietorships, partnerships, LLCs, and all types of corporations). A person with taxable gross receipts of more than $150,000 per calendar year is subject to this tax, which requires such person to register with this department as a taxpayer. Please note that certain receipts are not taxable receipts, such as interest income. The tax does have limited exclusions for certain types of businesses, such as financial institutions, insurance companies and some public utilities if those businesses pay specific other Ohio taxes. Taxable Gross Receipts Gross receipts subject to CAT are broadly defined to include most business types of receipts from the sale of property or realized in the performance of a service. The following are some examples of receipts that are not subject to the CAT: interest (other than from installment sales), dividends, capital gains, wages reported on a W-2, or gifts. In general, for the sale of property, such receipt is only considered a taxable gross receipt if the property is delivered to a location in this state. For services, the receipt is sitused (sourced) to Ohio in the proportion that the purchaser's benefit in this state bears to the purchaser's benefit everywhere. The physical location where the purchaser ultimately uses or receives the benefit of what was purchased is paramount in making this determination. In other words, receipts from sales to out-of-state purchasers or the proportion of the services where the benefit is primarily received outside of this state are not subject to the CAT. Registration Taxpayers having over $150,000 in taxable gross receipts sitused to Ohio for the calendar year are required to file returns for the CAT. In order to file returns, a taxpayer must first register for CAT with the Department of Taxation. Registration is available electronically legal or professional services expert licensed in your state. 9

10 Continuing legal or professional services expert licensed in your state. Page 10 of 55 through the Ohio Business Gateway. Alternatively, taxpayers may register by submitting the CAT 1 registration form. The CAT 1 registration form is available through the Department's Web site at Tax Forms or may be requested by calling Annual and Quarterly Filers Annual CAT taxpayers (those taxpayers with taxable gross receipts between $150,000 and $1 million in a calendar year) must pay an annual minimum tax. Beginning in 2010, the annual minimum tax is due on May 10 of the current tax year and will be paid with the filing of the annual return. The annual return reports the taxable gross receipts for the prior year's activity and prepays the annual minimum tax for the current calendar year. R.C was amended in the most recent budget bill to allow the Department to require annual CAT taxpayers to file and pay electronically for returns filed on or after Jan. 1, Taxpayers may file and pay electronically through the Ohio Business Gateway. Alternatively, annual taxpayers may utilize TeleFile as a means for filing and paying the annual CAT return electronically beginning in April Taxpayers with annual taxable gross receipts in excess of $1 million must file and pay returns on a quarterly basis. Quarterly returns are required to be filed electronically through the Ohio Business Gateway. Quarterly taxpayers owe the annual minimum tax for receipts up to $1 million. In addition, quarterly taxpayers pay a rate component for taxable gross receipts in excess of $1 million. Beginning in 2010, the annual minimum tax is paid with the filing of the first quarter return, which is due on May 10. Prior to 2010, the annual minimum tax was paid as part of the fourth quarter return due on February 10. Consolidated Elected Taxpayer Groups and Combined Taxpayer Groups A consolidated elected taxpayer group is a taxpayer that has elected to file as a group including all entities that have either 50 percent or more common ownership or 80 percent or more common ownership. In addition, the group can elect to include or exclude non-u.s. entities with the same common ownership in the group. A major benefit of making this election is that receipts received between members of the group may be excluded from the taxable gross receipts of the group. However, taxpayers making this election must agree that all commonly owned entities are part of the group even if nexus does not exist. This election is binding for eight calendar quarters. If such election is not made, any taxpayers with common ownership of more than 50 percent must file as a combined taxpayer group. Combined taxpayer groups may not exclude receipts between members of the group; however, such groups need only include in the group those members that have nexus with Ohio. legal or professional services expert licensed in your state. 10

11 Continuing legal or professional services expert licensed in your state. Page 11 of 55 Registration Taxpayers who are not registered for the CAT must register first before filing any return. If a person is unsure of how to register, it is advisable to register as a combined taxpayer group, as any election to consolidate is binding for eight calendar quarters. Requests to change registration status should be made by submitting the form CAT ES. Filing resources Taxpayers with taxable gross receipts in excess of $1 million are required to file and pay on a quarterly basis and to make the annual minimum tax payment. Other taxpayers file annually and pay the annual minimum tax. The 2014 Commercial Activity Tax Annual Return and 2015 Minimum Tax Payment Return is due on May 11, 2015 for annual taxpayers. This return may be filed through the Ohio Business Gateway or by TeleFile. Ohio Business Gateway (OBG) - The Ohio Business Gateway offers electronic registration and filing tools for the CAT, financial institutions tax (FIT), petroleum activity tax (PAT), sales tax, employer withholding, unemployment compensation, workers' compensation, and municipal income taxes for nearly 500 cities and villages. TeleFile - TeleFile is a quick and easy method to file and pay your CAT annual tax return. The phone number for our TeleFile system is In order to get started, all you need is a touch-tone telephone and your CAT information. One requirement for TeleFile is that you are registered for a CAT account. Payment can be made by electronic check. Filing Due Dates - The return for the fourth quarter of 2014 is due Feb. 10, The 2014 quarterly returns will be due on May 11, 2015 (first quarter), Aug. 11, 2015 (second quarter), Nov. 10, 2015 (third quarter) and Feb. 10, 2016 (fourth quarter). The annual minimum tax is due on May 11, 2015, with the first quarter return for quarterly taxpayers. For annual taxpayers, the annual minimum tax is due on May 11, 2015 with the 2014 Commercial Activity Tax Annual Return and 2015 Minimum Tax Payment Return. Please direct any questions to the Business Tax Division at Dealer in Intangibles Am. Sub. H.B. 510 enacted by the 129th General Assembly in December 2012 repealed the dealer in intangibles tax by providing that the tax is in effect only for tax years prior to Depending on the taxpayer s Ohio business activity, in 2014 a taxpayer will be legal or professional services expert licensed in your state. 11

12 Continuing legal or professional services expert licensed in your state. Page 12 of 55 responsible for filing either a financial institution tax return or a commercial activity tax return instead of the dealer in intangibles tax return. Taxpayers with dealer in intangibles tax liability for years prior to 2014 that have not filed all required returns should still file those returns with the Department. Employer Withholding Taxes With rare exception, employers that do business in Ohio are responsible for withholding Ohio individual income tax from their employees' pay. Ohio employers also have the responsibility to withhold school district income tax from the pay of employees who reside in a school district that has enacted such a tax. More details on employer withholding are available below. Ohio Employer Withholding Tax General Guideline Who Must Register All employers maintaining an office or transacting business in Ohio and required to withhold federal income tax must register by one of the following ways: By Internet: Register online through the Ohio Business Gateway (OBG) at business.ohio.gov and follow the instructions for Ohio Taxation New Account Registration By Telephone: Call , listen for the message and then press 2 to connect with an agent By Paper: Complete Ohio form IT 1, Application for Registration as an Ohio Withholding Agent, and mail it to the address shown on the form or fax it to the Ohio Department of Taxation at (614) An Ohio withholding account number will be assigned to new withholding agents after registration. All forms and correspondence must reflect this account number. The information required for registration includes: 1. Federal employer identification number; 2. Type of business and business code; 3. Date payroll anticipated; 4. Name; 5. Trade name, if any; 6. Business address and/or mailing address; 7. Ohio liquor permit number (if applicable); and legal or professional services expert licensed in your state. 12

13 Continuing legal or professional services expert licensed in your state. Page 13 of Name(s) and title(s) of the individual(s) responsible for filing returns and making payment of Ohio withholding tax. All employers liable for withholding Ohio income tax must register within 15 days of the date that such liability begins. Who Must Withhold Every employer maintaining an office or transacting business within the state of Ohio and making payment of any compensation to an employee, whether a resident or nonresident, must withhold Ohio income tax. Withholding is not required if the compensation is paid for or to: 1. Agricultural labor as defined in Division G of Section 3121 of 1. Title 26 of the United States Code; 2. Domestic service in a private home, local college club, or local chapter of a college fraternity or sorority; 3. Service performed in any calendar quarter by an employee unless the cash remuneration paid for such service is $300 or more and such service is performed by an individual who is regularly employed by such employer to perform such service. 4. Services performed for a foreign government or international organization; 5. Services performed by an individual under the age of 18 in the delivery or distribution of newspapers or shopping news, not including delivery or distribution to any point for subsequent delivery or distribution or when performed by such individual under the age of 18 under an arrangement where newspapers or magazines are to be sold by him at a fixed price, his compensation being based on the retention of the excess of such price over the amount at which newspapers or magazines are charged to him; 6. Services not in the course of the employer s trade or business to the extent paid in any medium other than cash; 7. Residents of Michigan, Indiana, Kentucky, West Virginia, and Pennsylvania, due to reciprocal agreements with Ohio. Who Is an Employee for Withholding Purposes Every individual who performs services subject to either the control and/or will of an employer, whether as to what shall be done and/or how it shall be done, is an employee for purposes of Ohio income tax. It does not matter that the employer permits the employee legal or professional services expert licensed in your state. 13

14 Continuing legal or professional services expert licensed in your state. Page 14 of 55 considerable discretion and freedom of action, so long as the employer has the legal right to control either the method and/ or result of the services. All employees, except residents of Michigan, Indiana, Kentucky, West Virginia and Pennsylvania, who work in and/or perform personal services in Ohio, are subject to withholding of Ohio income tax to the extent of compensation paid for their services in Ohio. Reports and Forms That Must Be Filed: Ohio Withholding Exemption Certificate: Each employee must complete an Ohio form IT 4, Employee s Withholding Exemption Certificate, or the employer shall withhold tax from the employee s compensation without exemption. Ohio Withholding Tax Returns: Effective Jan. 1, 2015, in accordance with Ohio Administrative Code rule , employers are required to file state and school district income tax withholding returns and make payment of the withheld taxes through the OBG. Employers subject to withholding must make payments in the amounts required to be withheld. The withholding tax forms that you file are based on your filing frequency. Monthly and quarterly filers remit state income tax withholding payments on OBG using Ohio form IT 501. Employers who have been approved under the opt out provision to file paper state income tax withholding returns, remit withholding tax payments using Ohio form IT 501, mailed to the Ohio Department of Taxation with remittance made payable to the Ohio Treasurer of State. Partial-weekly filers are required to pay withheld taxes by EFT and do not file or send in form IT 501. Filing Frequency: An employer s filing and payment frequency for state income tax withholding is determined each calendar year by the combined amount of state and school district taxes that were with- held or required to be withheld during the 12-month period ending June 30 of the preceding calendar year (i.e., the look-back period). Quarterly payments must be remitted with Ohio form IT 501 on OBG by the last day of the month following the end of each calendar quarter, if the combined amount of taxes that were withheld or required to be withheld was $2,000 or less during the look-back period. Employers who registered on or after July 1 of the preceding calendar year will also remit quarterly, unless notified otherwise. Monthly payments must be remitted with Ohio form IT 501 on OBG within 15 days following the end of each month, if the combined amount of taxes that were withheld or legal or professional services expert licensed in your state. 14

15 Continuing legal or professional services expert licensed in your state. Page 15 of 55 required to be withheld was greater than $2,000 but less than $84,000 during the lookback period. Partial-weekly payments must be remitted by EFT within three banking days from the end of each partial-weekly period in which the employer had payroll, if the combined amount of taxes that were withheld or required to be withheld was $84,000 or more during the look-back period. There are two partial-weekly withholding periods each week that consists of a consecutive Saturday, Sunday, Monday and Tuesday or a consecutive Wednesday, Thursday and Friday. A partial-weekly withholding period cannot extend from one year into the next. Also, partial-weekly filers must file form IT 942, Ohio Employer s Quarterly Reconciliation of Income Tax Withheld, for each calendar quarter on OBG. The form is due no later than the last day of the month following the end of each calendar quarter. Note: If the tax withheld by an employer during a pay period reaches $100,000 or more, payment of the accumulated taxes (excluding payment of school district income taxes) is due by the first banking day after the pay date on which the accumulated taxes equal or exceed $100,000. If the employer is a partial-weekly filer, payment must be made by EFT. Ohio Annual Report 1. To Employees (forms W-2 or 1099-R). On or before Jan. 31 of the succeeding calendar year, an employer required to withhold shall furnish to all employees on whom tax was or should have been withheld, two copies of the report of compensation paid during the calendar year and of the amount deducted and withheld as tax. Employers may use federal form W-2 or 1099-R. 2. To the Ohio Department of Taxation (Ohio form IT 941). An employer who is required to remit quarterly or monthly shall file form IT 941, Ohio Employer s Annual Reconciliation of Income Tax Withheld, on or before Jan. 31 of the succeeding calendar year. 3. To the Ohio Department of Taxation (Ohio form IT 942). An employer who is required to remit partial-weekly shall file form IT 942, Ohio Employer s EFT 4th Quarter/Annual Reconciliation of Income Tax Withheld, no later than the last day of the month following the end of the calendar year. Form IT 942 is filed on OBG. EFT filers do not file form IT To the Ohio Department of Taxation (Ohio form IT 3). An employer required to withhold shall file on or before the last day of February of the succeeding calendar year form IT 3, Transmittal of Wage and Tax Statements. Employers are no longer required to send us paper copies of federal form W-2. If the information is not legal or professional services expert licensed in your state. 15

16 Continuing legal or professional services expert licensed in your state. Page 16 of 55 submitted electronically, the Ohio Department of Taxation may request W-2s periodically when conducting compliance programs. If you elect to send your state W-2 information to us on magnetic media, you must comply using an approved format. Employers with 250 or more W-2 Copy A forms must file them electronically using the EFW2 format. Electronic format information is also available on the department s Web site at tax.ohio.gov. Corrections 1. To Employee and the Ohio Department of Taxation (W-2 or 1099-R). An employer must furnish a corrected W-2 or 1099-R if, after the original form has been given to an employee, an error is discovered. Corrected statements should be clearly marked CORRECTED BY EMPLOYER and one copy should be submitted to the Ohio Department of Taxation and two copies to the employee. If the W-2 or 1099-R is lost or destroyed, two substitute copies must be submitted to the employee and one to the Ohio of Department of Taxation marked REISSUED BY EMPLOYER. 2. Over- or under-withholding quarterly, monthly (form IT 501) and partial-weekly (form IT 942) filers. a. If the error is discovered in a subsequent period of the same calendar year, make the adjustment by reducing or increasing the tax due on your next form IT 501 or EFT payment. b. If an error is discovered after the annual reconciliation form IT 941 has been filed, complete an amended reconciliation, form IT 941X for that year. For EFT filers, file an amended form IT 942, Ohio Employer s EFT 4th Quarter/Annual Reconciliation of Income Tax Withheld, through OBG. Employer s Liability for Withheld Tax Each withholding agent is liable for the tax required to be withheld. For purposes of assessment and collection, amounts required to be withheld and paid to the Ohio Department of Taxation are considered to be a tax on the employer. The officer or the employee having control or supervision of or charged with the responsibility of filing the report and making payment shall be held personally liable for any failure to file the report and/or pay the tax as required by law. Interest and Penalties If an employer fails to pay the tax deducted and withheld from employees by the due date, interest shall accrue on the unpaid tax at the rate provided for under Ohio Revised Code section Interest on the tax due is charged in addition to any penalty that may be incurred for late filing and/or late payment of a tax due. legal or professional services expert licensed in your state. 16

17 Continuing legal or professional services expert licensed in your state. Page 17 of 55 If an employer fails to pay the tax deducted and withheld from employees compensation by the due date, a penalty of 50% may be assessed on the tax due, unless it is shown the failure was for reasonable cause and not willful neglect. If a return, or Ohio forms IT 501, IT 941, IT 942 or IT 3 is not filed, or is filed after the due date, the penalty is the greater of: $50 per month up to a maximum of $500 or 5% per month up to a maximum of 50% of the tax due. What Records To Keep Every employer required to withhold Ohio income tax is required to maintain accurate records of all persons from whom tax is collected for a period of four years from the due date. Records must include: 1. Amounts and dates of all compensation paid and taxes withheld by pay period. 2. Names, addresses, school district of residence, principal county of employment (nonresidents) and Social Security numbers of all employees receiving compensation. 3. Periods of employment, including periods during which compensation is paid while absent due to sickness or injury. 4. Copies of Ohio forms IT 501, IT 941, IT 942 and IT 3 filed with the Ohio Department of Taxation. 5. Forms W-2 and 1099-R. Personal Care Services Tax Compliance Guide Am. Sub. H.B. 95 of the 125th Ohio General Assembly expanded the tax base for the Ohio sales tax. In that bill, a new Revised Code ("R.C.") section (B)(3)(r) was enacted, which includes within the definition of a taxable "sale" all transactions by which: On and after August 1, 2003, personal care service is or is to be provided to an individual. As used in this division, "personal care service" includes skin care, the application of cosmetics, manicuring, pedicuring, hair removal, tattooing, body piercing, tanning, massage, and other similar services. "Personal care service" does not include a service provided by or on the order of a licensed physician or licensed chiropractor, or the cutting, coloring, or styling of an individual s hair. Persons providing personal care service must collect and remit Ohio sales tax on all such services provided on or after August 1, The purpose of this release is to provide guidance to service providers to assist them in complying with the tax law. legal or professional services expert licensed in your state. 17

18 Continuing legal or professional services expert licensed in your state. Page 18 of What type of license do I need as provider of personal care service? A provider of personal care service is required to obtain a vendor s license for each fixed location from which the service is provided. A county vendor s license must be obtained from the county auditor of the county in which the place of business is located. The application form for a vendor s license is available on the website of the Ohio Department of Taxation: under the "FORMS" tab. Examples of a fixed location would be a store, office or salon at which the services are regularly performed. Vendors that do not have a fixed location in this state such as vendors located outside of this state that are providing the personal care service in this state or persons providing services at temporary locations such as fairs, shows or festivals, or that travel to customers locations to perform their services should obtain a transient vendor s license. Transient licenses are obtained from the Ohio Department of Taxation and the application form for a transient license is also available on the Department s website. 2. What are some examples of taxable personal care services? Taxable "personal care services" include such services as: Skin care, including facials and exfoliation Cosmetics application The application of false eyelashes Manicures, including the application of polish The application of artificial nails Pedicures Hair removal by any means, including electrolysis, plucking or the application of depilatory products Body piercing and branding Tattooing, including permanent and temporary tattoos Massage, all types legal or professional services expert licensed in your state. 18

19 Continuing legal or professional services expert licensed in your state. Page 19 of 55 Tanning, whether done using light or chemical means 3. What services are not "personal care services"? Examples of services that are not taxable "personal care services" include: Hair cutting, coloring or styling Pet grooming Application of cosmetics performed as a part of mortuary services Face painting at fairs or festivals Any service that would otherwise be a taxable "personal care service" when that service is performed by or on the order of a licensed physician or chiropractor 4. I provide personal care services in a beauty salon that already has a vendor s license. Do I need a vendor s license? This would depend on your relationship with the salon. If you operate as an independent contractor and your clients deal with and pay you directly; you should be licensed and collect and remit tax on your services. If you are an employee of the salon, or if the customers make their payments to the salon, the salon should collect and remit the tax on its vendor s license. 5. I have a shop where I perform body piercing and I also sell jewelry. I already have a vendor s license to sell jewelry. Do I need an additional license to perform personal care service? No. You should report the tax collected on your personal care services on your existing vendor s license. 6. I am a massage therapist licensed by the Ohio State Medical Board. Is my service taxable? Yes, unless the services are being provided on the order of a licensed physician or chiropractor. In such a case, you should retain sufficient information in your records to verify the exempt sales. legal or professional services expert licensed in your state. 19

20 Continuing legal or professional services expert licensed in your state. Page 20 of I am employed by a company to provide massages to other employees of the company? Do I need to collect tax? An employee performing his or her duties for the employer is not making a sale. In such a case there would be no sales tax. However, if the service provider were an independent contractor, and not an employee of the company, the services would be taxable. In that case, the service provider should collect tax on the amount it is paid by the company for the service. 8. What rate of tax do I collect? For services performed at a fixed place of business, the tax rate will be the rate in effect for that location. For services performed under a transient license, the tax rate will be the rate in effect where the customer receives the service. For example, a tattoo artist that travels to various events in Ohio would collect the tax rate applicable on any transaction at the rate applicable in the location where the service is provided. 9. Can I claim a sales tax exemption on any of the supplies or equipment I use in performing a personal care service? Under Ohio law, service providers are the consumers of all items they use in performing their services. However, R.C (B)(43)(m) provides an exemption for purchases by a service provider of tangible personal property that the service provider permanently transfers to the consumer as an integral part of the performance of the service. For example: A tattoo artist may claim exemption on the purchase of inks that are transferred permanently to the consumer as part of the tattoo. No exemption is allowed for purchases of needles used to perform the tattooing. A skin care provider may claim exemption on purchases of lotions, creams, or cosmetics that are applied to the consumer and are not removed as part of the service. No exemption for items that are applied and removed, such as masks, or for items used to apply any creams, lotions or cosmetics. A provider of massage may claim exemption on the purchase of oils or lotions applied to the consumer of the massage. Tax must be paid on items such as massage tables, towels, or sheets. 10. Is shaving hair a taxable service? legal or professional services expert licensed in your state. 20

21 Continuing legal or professional services expert licensed in your state. Page 21 of 55 While R.C (B)(3)(r) requires that tax be applied to hair removal, the tax does not apply to the cutting, coloring or styling of an individual s hair. Shaving involves the cutting of hair rather than its removal. Therefore, shaving is not subject to the tax. 11. I sold a gift certificate to a client prior to August 1, The recipient of that certificate comes in to have the service performed after August 1. Does the tax apply? If the certificate is for the performance of a specified service (i.e. a certificate for a manicure or a one-hour massage) you need not collect tax from the recipient when that service is performed. Such certificates sold on and after August 1, 2003 are subject to sales tax when the certificate is sold. Any additional amount you charge the recipient for additional services would be taxable. If the certificate is for a specified dollar value (i.e. fifty dollars toward any product or service at a salon), the certificate is treated the same as cash. When such a certificate is used to purchase taxable property or services, tax should be charged on the full price of the property or service. 12. Are personal care services provided by an agency of the state of Ohio (such as a state college or university) or a political subdivision of the state subject to tax? No. R.C (B)(22) provides an exemption when these services are provided by the State of Ohio or any of its political subdivisions, agencies, instrumentalities, institutions, or authorities. This exemption applies only to the provision of services and not to any sales of tangible personal property a personal care service provider may make. Use Tax and Businesses What is Use Tax? Use tax is similar to a sales tax in its application. Use tax is imposed on the "storage, use or other consumption" of all tangible personal property and the receipt of certain services that are subject to sales tax. Purchases that are properly exempt from sales tax are also exempt from the use tax. Use tax must be paid on all purchases made by Ohio residents and businesses if the proper legal or professional services expert licensed in your state. 21

22 Continuing legal or professional services expert licensed in your state. Page 22 of 55 amount of sales tax has not been paid to the vendor, seller, or service provider. The use tax rate is equal to the sales tax rate in effect in the county where the property is used or the benefit of the service is received by the purchaser. The most common situation that gives rise to a use tax liability is when an Ohio customer makes a mail order or online purchase from an out-of-state seller. Use tax is also due when the purchaser improperly claims exemption from the sales tax or if the sales tax paid is less than the total use tax in effect in the county where the item is used or the benefit of the service is received. One of the main reasons for the use tax is to protect Ohio vendors from unfair competition from out-of-state sellers, since the in-state merchant is required to collect sales tax when selling to an Ohio resident or business. All states that have a sales tax have a use tax. How is Use Tax paid? Many out-of-state sellers are registered with the State of Ohio for the collection and remittance of the use tax. However, if the proper amount of sales or use tax is not collected at the time of purchase, the amount of tax due can be paid directly by the consumer to the State of Ohio. A consumer who makes regular purchases upon which the proper amount of sales or use tax is not collected by the seller should apply for a consumer's use tax account with the Department of Taxation and begin filing use tax returns. If the purchases are isolated, the consumer should make a voluntary payment of the tax by sending a payment of the amount due to the Ohio Department of Taxation along with a description of the purchases made and the date of purchase. Use tax on purchases can also be paid on the Ohio income tax return. Do businesses need to be concerned with Use Tax? Many out-of-state sellers are registered with the State of Ohio for the collection and remittance of the use tax. However, if the proper amount of sales or use tax is not collected at the time of purchase, the amount of tax due can be paid directly by the consumer to the State of Ohio. A consumer who makes regular purchases upon which the proper amount of sales or use tax is not collected by the seller should apply for a consumer's use tax account with the Department of Taxation and begin filing use tax returns. If the purchases are isolated, the consumer should make a voluntary payment of the tax by sending a payment of the amount due to the Ohio Department of Taxation along with a description of the purchases made and the date of purchase. Use tax on purchases can also be paid on the Ohio income tax return. legal or professional services expert licensed in your state. 22

23 Continuing legal or professional services expert licensed in your state. Page 23 of 55 What is subject to Use Tax? Ohio law provides that all tangible personal property stored, used or otherwise consumed in Ohio along with certain taxable services used in Ohio are subject to use tax unless: (1) Ohio sales tax has been paid or (2) there is an exception or exemption that applies to the transaction. In general, the following are examples of tangible personal property subject to use tax: The above lists are not all-inclusive and provide only a basic knowledge of what items are subject to use tax. Depending on your business, various other purchases of tangible personal property and services may also be subject to use tax. Use Tax and Service Providers Service providers like all other taxpayers, owe use tax on their untaxed purchases of tangible personal property used in Ohio (see Table 1). Service providers also owe use tax on their untaxed purchases of certain taxable services provided to them in Ohio (see Table legal or professional services expert licensed in your state. 23

24 Continuing legal or professional services expert licensed in your state. Page 24 of 55 2). In addition, service providers have an added responsibility of paying tax on certain purchases used in pro- viding their service (see Table 3). Ohio law provides that a service provider is a consumer of the tangible personal property that it uses in providing its own service. As the consumer, the service provider is responsible for paying sales or use tax on the purchase of the tangible personal property. If a service provider does not pay Ohio sales tax to its supplier on the tangible personal property, then it generally owes use tax when it uses that tangible personal property. The use tax will need to be remitted directly to Ohio by the service provider. If a service provider transfers tangible personal property to its customer when providing its own tax- able service, then the service provider can purchase that tangible personal property exempt from sales and use tax as a sale for resale. However, the service provider is required to collect sales tax on the sale of its service to its customer. What is Subject to Use Tax? The lists below are not all-inclusive and provide only a basic knowledge of what items are subject to use tax. In general, the following are examples of tangible personal property subject to use tax: In general, the following are examples of services subject to use tax: legal or professional services expert licensed in your state. 24

25 Continuing legal or professional services expert licensed in your state. Page 25 of 55 Ohio Small Business Tax Deduction Cutting Small Business Taxes Virtually all small businesses in Ohio are now eligible for a 50 percent tax deduction on the first $250,000 of business income. This deduction is the centerpiece of a major tax reform package initiated by Ohio Governor John Kasich and approved by the Ohio General Assembly that produced the largest overall tax reduction in the country -- $2.7 billion over three years. The small business deduction enables a business owner to deduct 50 percent of Ohio net business income from the Ohio adjusted gross income (OAGI) they report on their Ohio personal income tax return. If the business has multiple owners, each is eligible to claim the deduction. This 50 percent deduction is available on up to $250,000 in business income, meaning the deduction is capped at $125,000 for each investor or owner. The deduction cannot exceed the taxpayer's Ohio adjusted gross income (OAGI). Owners of and investors in Ohio businesses structured as sole proprietorships and passthrough entities (PTEs) qualify for this new tax cut. PTEs include: partnerships, Subchapter S corporations (S-corps) and Limited Liability Companies (LLCs). Income generated by the business and passed through to the owners/investors is subject to personal income tax. The deduction is first effective for income earned in taxable year 2013 and claimed on income tax returns filed in For more information on this tax cut, please contact the Ohio Department of Taxation at: legal or professional services expert licensed in your state. 25