Employment Tax Laws LAUSD Small Business Boot Camp v15a
Presenters Jimmy Wong Employment Development Department (EDD) Taxpayer Assistance Center 1-888-745-3886 / www.edd.ca.gov Anthony Sykes Internal Revenue Service (IRS) Leveraged Partner 1-800-829-4933 / www.irs.gov
Agenda Employee or Independent Contractor Reporting Requirements for Independent Contractors Employer Responsibilities Reporting and Depositing Requirements
Employee or Independent Contractor
Misclassification Example One worker, earning $20,000 for one year UI (3.4 percent)* *New employer rate Employer misclassifies worker as independent contractor. Employer correctly classifies worker as employee. $238 $238 ETT (0.1 percent) $7 $7 SDI (0.9 percent) $180 PIT (6.0 percent) $1,200 Total due for one year $1625** **Plus penalty and interest $245
Types of Workers Employees Common Law Statutory Exempt Independent Contractors
Employee and Independent Contractor Common Law Employee: An individual who performs services for you and is subject to your control regarding what will be done AND how it will be done. Independent Contractor: An individual who performs services for you BUT you control only the result of the work.
Common Law Factors IRS - Categories of Evidence Behavioral Control Financial Control Relationship of Parties EDD - Primary Factor Right of Direction and Control Secondary Factors: Supervision Extent of actual control Skill level Distinct trade or occupation Method of payment Tools and place of work Profit/loss Length of time Services benefit the principal Regular part of business Belief of the parties
Reasons to Properly Classify Workers Avoid reclassification audits and investigations by the EDD, IRS, and/or Department of Industrial Relations due to: Worker claims unemployment/injury. Worker informants. Competitor informants. Prevent additional taxes, penalties, and interest.
Voluntary Classification Settlement Program Optional program to reclassify workers. Applies to future tax periods. Must meet eligibility requirements. Apply by filing Application for Voluntary Classification Settlement Program (VCSP), Form 8952 Must enter into a closing agreement.
IRS Resources Business and Specialty Tax Hotline: 888-829-4933 Visit www.irs.gov Select Information For in upper-right corner. Choose Businesses from the drop-down menu. Select Employment Taxes in the left navigation pane.
IRS Resources (continued) Independent Contractor or Employee, Publication 1779 Employer s Tax Guide, Publication 15 (Circular E) Employer s Supplemental Tax Guide, Publication 15-A Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, Form SS-8
Additional Resources California Employer s Guide (DE 44) Information Sheet: Employment (DE 231) Employment Determination Guide (DE 38) Determination of Employment Work Status for Purposes of State of California Employment Taxes and Personal Income Tax Withholding (DE 1870) Employee or Independent Contractor Course at: www.edd.ca.gov/payroll_taxes/web_based_seminars.htm
Reporting Requirements for Independent Contractors
Request for Taxpayer Identification and Certification, Form W-9 Reports: Payee s correct name. Payee s Taxpayer Identification Number (TIN).
Backup Withholding Requirements Withhold 28 percent of income if: Payee does not provide TIN. Payee provides incorrect TIN. IRS notifies payer of incorrect TIN. Withholding time frames: Begin with first payment over $600. Until payee provides correct TIN.
TIN Matching Program Benefits: Match payee name with Form W-9 Match TIN with IRS records. Decrease backup withholding and penalty notices. Reduce the error rate in TIN validation. IRS e-services verification available.
California Backup Withholding Requirements If required to remit federal backup withholding to IRS, withhold 7 percent of income. Remit to Franchise Tax Board: www.ftb.ca.gov/individuals/wsc/backup_withholding.shtml
Report of Independent Contractor(s) (DE 542) Report within 20 days if you are making payments totaling more than $600 or entering into a contract of $600 or more, whichever occurs earlier. File timely to avoid penalty and interest. Locate parents who are delinquent in their child support obligations.
Form 1099-MISC Filing Requirement Report payments of $500 or more paid in the course of your trade or business to non-employees annually. Report payments of at least $10 in royalties or broker payments in lieu of dividends or taxexempt interest. Provide required copies timey to: Payees by January 31. IRS by last day of February. Exception awareness.
Potential Penalties Failure to file correct information returns by due date. Trust fund Imposed when taxes withheld are not sent to IRS. 100 percent of taxes, for taxes not sent to IRS. Potential backup withholding for payer.
Employer Responsibilities
Employer s Federal Requirements Obtain federal Employer Identification Number with the Application for Employer Identification Number, Form SS-4 Complete federal forms: Employee s Withholding Allowance Certificate, Form W-4 Employment Eligibility Verification, Form I-9 Notify the IRS of address change.
Employer s State Requirements Obtain a workers compensation insurance policy. Apply for an EDD employer account number. Registration Form for Commercial Employers (DE 1) Online Mail
When Hiring New Employees Obtain an Employee s Withholding Allowance Certificate (DE 4) if status/allowance claimed differ from Form W-4. Submit a Report of New Employee(s) (DE 34).
Employee Notification Requirements Notice to Employees (DE 35) Paid Family Leave (DE 2511) State Disability Insurance Provisions (DE 2515) For Your Benefit: California s Programs for the Unemployed (DE 2320) Written separation notice to employees. Information on Earned Income Tax Credit.
Posting Requirements State and federal regulations require employers to display various posters and notices to inform their employees of certain laws and regulations pertaining to employment and working conditions.
Recordkeeping Maintain wage, earning, deduction, and withholding records on each employee. Provide earning statements to each employee, each payday. Retain employee records and returns for at least four years.
Reporting and Depositing Requirements
2015 Federal Payroll Taxes Employer pays: Federal Unemployment Tax Act (FUTA): 6 percent for the first $7,000 paid to each employee as wages during the year. Federal Insurance Contributions Act (FICA) Social Security: 6.2 percent of the first $118,500 (wage base limit). FICA Medicare: 1.45 percent on all wages.
2015 Federal Payroll Taxes (continued) Employee pays: FICA Social Security: 6.2 percent on the first $118,500 (age base limit). FICA Medicare: 1.45 percent on all wages. Federal Income Tax: Refer to Pub 15
2015 State Payroll Taxes Employer pays: Unemployment Insurance (UI): 3.4 percent on first $7,000 (taxable wage limit). Employment Training Tax (ETT): 0.1 percent on first $7,000 (taxable wage limit).
2015 State Payroll Taxes (continued) Employee pays: State Disability Insurance (SDI): 0.9 percent on first $104,378 (taxable wage limit). Personal Income Tax (PIT): Refer to the California Employer s Guide (DE 44).
Electronic Federal Tax Payment System Methods Online: www.eftps.gov Call toll-free 800-555-4477 No cost. Available 24 hours a day, 7 days a week. Taxpayers guided through process. Third-party deposit verification.
State Payroll Tax Deposit Methods e-services for Business Electronic Funds Transfer Payroll Tax Deposit (DE 88) Credit Card (phone or internet)
State Payroll Tax Reporting Forms Payroll Tax Deposit (DE 88) Quarterly Contribution and Report of Wages (DE 9) Quarterly Contribution and Report of Wages (Continuation) (DE 9C)
Forms and Due Dates DE 9/DE 9C First Quarter (Jan. - March) due April 30 Second Quarter (April - June) due July 31 Third Quarter (July - Sept.) due Oct. 31 Fourth Quarter (Oct. - Dec.) due Jan. 31
Correcting a Prior DE 9 or DE 9C Correct form online via e-services for Business Complete and mail a Quarterly Contribution and Wage Adjustment Form (DE 9ADJ) Refer to the Instructions for Completing the Quarterly Contribution and Wage Adjustment Form (DE 9ADJ-I)
Federal Payroll Tax Reporting Forms Employer s Quarterly Federal Tax Return, Form 941 Employer s Annual Federal Unemployment (FUTA) Tax Return, Form 940 Multi-State Employer and Credit Reduction Information, Schedule A (Form 940) Employer s Annual Federal Tax Return, Form 944
Forms 941 and 940 Due Dates Form 941: First Quarter (Jan. - March) due April 30 Second Quarter (April - June) due July 31 Third Quarter (July - Sept.) due Oct. 31 Fourth Quarter (Oct. - Dec.) due Jan. 31 Form 940 (Jan. Dec.) due Jan. 31
Federal Payroll Tax Reporting Forms (continued) Wage and Tax Statement, Form W-2 Transmittal of Wage and Tax Statements, Form W-3
Forms W-2 and W-3 Due Dates Form W-2 to employees by January 31. Form W-3 and Forms W-2 to Social Security Administration by last day of February. May be sent by March 31 if filing electronically.
Correcting Employment Tax Forms Multi-purpose X forms to correct previously filed employment tax return: Make adjustments. Claim refunds. Claim abatements. Each stand-alone form corresponds to and relates line-by-line with employment tax return being corrected.
Penalty and Interest Prevention Classify workers properly. File all documents and returns timely. Make all payments timely and in full. Use electronic filing and payment methods to reduce errors. Respond timely to all correspondence.
California Tax Service Center www.taxes.ca.gov IRS www.irs.gov 800-829-4933 FTB www.ftb.ca.gov 800-852-5711 BOE www.boe.ca.gov 800-400-7115 EDD www.edd.ca.gov 800-745-3886
Thank You. Questions?