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Transcript of Ohio Soil and Water Conservation Districts April 15, 2008 Trudee Billo Federal State and Local...
Ohio Soil and Water Conservation Districts
April 15, 2008
Trudee Billo
Federal State and Local Government Specialist
419-522-2359
Federal Agencies
State Agencies
Municipal Governments
County Governments
School Districts
F S L G
INDEPENDENT CONTRACTOR OR
EMPLOYEE?
INDEPENDENT CONTRACTOR DEFINED
Not subject to the control or direction of another as to the means and methods for accomplishing a result.
– Reg. 31.3121(d)-1(c)
EMPLOYEE DEFINED:
• IRC 3121(d) and Reg. 31.3121(d)-1– Officer of a corporation– Individual under usual common law rules– Individual who performs services for pay for
any person– Specifically identified by Statute
COMMON LAW STANDARD
– Employer-employee relationship exists– Employer has the right to direct and control
the worker– not only as to what work shall be done but
also– how work shall be done
Publication 963, chapter 3 7
FACTORS:
Review factors involved in worker classification to assure proper tax treatment:
• Behavioral Control
• Financial Control
• Relationship of the Parties
BEHAVIORAL CONTROL
• Instructions– when to do the work– where to do the work– what tools or equipment to use– what work must be performed– what routines or patterns must be used
• Evaluation Systemsmeasures compliance with performance standards
• TrainingPeriodic or on-going training provided by business about procedures to be followed and methods to be used strong indication business wants services performed in a particular manner
BEHAVIORAL – Cont’d
FINANCIAL CONTROL• Significant Investment• Unreimbursed Expenses• Services available to the market• Method of Payment• Opportunity for profit and loss• Compensation based on hourly, daily,
weekly basis– evidence of employer-employee
RELATIONSHIP OF THE PARTIES
• Written contracts
• Employee benefits
• Discharge/Termination
Employees...Some Factors that may indicate workers
are employees:
Required to wear uniformsRequired to work certain hoursDo not handle own sales receiptsDo not make own appointmentsOwner provides trainingOwner provides supplies and materialsStands no risk of loss
Independent Contractor
• Makes own schedule• Buys own products• Has own phone number• furnishes own supplies • furnishes own equipment• makes a profit or loss as a result of his
own business decisions
Factors that may indicate you are an Independent contractor:
DETERMINATION OF STATUS
• Consider all aspects of right to direct and control.
• Type of payment made
• SS-8 determination– an IRS determination based on individual
facts and circumstances– No charge
Employee or Contractor??
Many state and local government officials are employees by statute
Elected Officials are always employees
Withhold taxes
Report on Form W-2
Resources
• Publication 1779 - determination on status of worker as either an independent contractor or an employee
• Publication 963 Chapter 3
• Revenue Ruling 87-41 – 20 common law factors
• IRC 3401
Fringe Benefits
• Any property, service or cash
(other than salary)– Provided by employer
• Taxable unless excluded specifically by law– Example: Medical Premiums IRC
106
Taxable Fringe Benefits
• Include in Employee’s wages and on W-2 (Never on 1099-MISC)
• Subject to Federal Withholding, Social Security and Medicare
• Include on Form(s) 941—withhold and pay taxes
• Even if benefit is received by/for spouse or child of employee
Accountable Plan
• Business Connection
• Adequate ‘accounting’ by employee in reasonable time period
• Excess reimbursement returned in a reasonable time period
Non-accountable Plan
• Does not meet all 3 requirements for an accountable plan
• Benefit is fully taxable when paid
NON-TAXABLE FRINGE BENEFITS
• No additional cost service
• Qualified employee discounts
• Working condition fringe
• De minimis fringe
• Qualified transportation expenses
• Qualified Moving Expense Reimbursements
De Minimis Benefit
• Property or service, the value of which after taking to into account (Frequency) is so small that accounting for it would be unreasonable
• Must be small and infrequent• Frequency defined - an event which is not
haphazard but regularly reoccurring
Working Condition Fringe
• Use must relate to the employer’s business• Employee would be entitled to deduction under
IRC 162 or 167 if they paid for it• Business use is substantiated• Examples: desks, computers, possibly vehicles
Cash Allowances
• AKA “Stipends”• Do NOT qualify as a “working condition”
fringe benefit• Do NOT qualify as “de minimis” fringe
benefit• Taxable to the Employee
– Unless paid under the accountable plan rules
Meal Money/Reimbursement
• Taxable
- Meals away from tax home but not overnight
Nontaxable – Meals away from home overnight– Entertainment meals may be excluded if
directly related to or associated with conduct of business
– Meals officially scheduled as part of conference
Meal Allowance when not traveling Overnight
• May not be Taxable:– Directly-related Test
• Business actually conducted during meal
– Associated Test• Clear business reason
• Meals with business meetings – Officially scheduled as part of
conference/convention
MealsMay Exclude:• Meeting treats, parties, & picnics • De minimus meals that are occasional &
difficult to account for• Meals furnished on business premises for
employer’s convenience
• Employer buys you lunch – if provided to promote goodwill or improve
morale – Taxable as wages
Meal Money Allowance• De minimus fringe benefit if reasonable
and meets all three conditions:– Occasional basis
• Frequency and regularity• Employee by employee basis
– Provided for overtime work• Overtime work necessitates extension of normal
work schedule
– Enables overtime work
– Publication 15-B
Meal Money Allowance/Reimbursement :
• Meals away from home:
– Overnight
• Accountable Plan - Not taxable
– Not Overnight
• Taxable as wages
Cell phones
• Listed property §280F(d)(4)
• Susceptible to personal use
• Substantiation rules §274(d)
• MUST allocate cost between business and personal use
• Personal use is taxable fringe benefit
– Taxable even if usage is not over monthly amount paid by employer
Cell phones
• Need itemized bills• Need written policy• Employees can reimburse or Employer
can include in Employees’ wages• Employees need to check the bills for
personal calls• Taxable even if usage is not over
monthly minutes allowed in plan
Cell Phone Examples
• Plan is 500 min. & Employee used 400 minutes total. 50 minutes used personally.
• Personal use is still taxable even though Employee didn’t go over total plan minutes
• If using “free” nights/weekends minutes--still personal use and is taxable
• If no Employee accountability (they don’t keep track of personal calls) then tax entire phone bill each month
Personal Cell Phone
• If personal (Employee owned) cell phone is used for business:– Employee must account for business calls– Reimburse only business calls
• If a flat amount or allowance is given for using personal cell and no accountability then total amount paid is taxable
UniformsMay be excluded from income:1. Must be required by employer, AND
2. Cannot be adaptable to every day street wear(both requirements must be met)
• Employer may provide the clothing or an allowance paid to employees
• Allowances must be paid through an accountable plan to be excluded from income
• Treasury regulations 1.62-2(c)(1)
Uniforms
• Clothing suitable for taking the place of regular clothing, include in wages on form 941 and in form W-2– IRC 162 & 262– Mella v. Commissioner T.C. Memo 1968-594
• Not enough that the employee does not wear the clothing away from work– Pevsner v. Commissioner 628 F.2d 467
Clothing Allowance/Reimbursement
• Cost and upkeep of the work clothes may be excluded from income if:
1. Required as condition of employment and
2. is NOT suitable for everyday wear
• Protective or safety clothing required by an employer, although it may have some personal use can be excluded
• Substantiation of costs incurred and paid by Employee (required under accountable plan rules)
Automobile Expenses• Employee car used for employer’s
business – 2007 Federal Mileage Rate - .485– 2008 Federal Mileage Rate - .505
• At this rate or less: Non-taxable to employee
• Excess over rate: Taxable to employee - only the excess amount
– Substantiation required
Substantiation
• Employee reports to Employer:– Date, Purpose, Place of each trip– Mileage – Examples: Diary, log, trip sheet,
expense statement or similar record
– IRC 274(d) - IRC 280F(d)(4)
Employer-Provided Vehicles
• Personal Use is taxable
• Business Use is not taxable
• Employee can reimburse Employer for personal use
• Commuting is taxable
Personal Usage
• If employer provided vehicle does not meet the qualifications for non-personal use vehicle, and
• Employee is not restricted from using the vehicle for personal use, then
• Personal use is usually a non-cash taxable fringe benefit
Valuing Personal Use
• Lease Valuation rule – Reg. 1.61-21(d)
• Cents-per-mile Rule – Reg. 1.61-21(e)
• Commuting Rule – Reg. 1.61-21(f)
Cents-Per-Mile Rule
• Vehicle “regularly used” in business OR• Vehicle driven 10,000 miles a year and FMV in 2008 limited to $15,400
• Regularly used means– 50% or more of mileage is for business or– Vehicle is used to transport at least 3
employees to work
Commuting Rule
$1.50 per one-way commute if: Vehicle owned or leased by employer Employer requires the employee to
commute for bona fide noncompensatory business reasons
Written policy on personal use No control employees (elected officials)
Lease Valuation Rule
1. Determine FMV of vehicle
2. Use table in Reg. 1.61-21(d)(iii)1. Also in Pub 15-B
3. Determine % of personal use
4. Multiple Annual Lease Value by % of personal use
5. Value the fuel if provided 5.5 cents
SPECIAL ACCOUNTING RULES (Automobiles):
• Employer can elect when to withhold
• Employer can withhold at 25%
• November and December benefits may be treated as paid in next year
• Employer can elect not to withhold FIT– Employer must tell employee– Employer includes in wages on W-2
Qualified Non-personal Use Vehicles
• Must have policy restricting personal use
• Commuting is non-taxable to employee
• Substantiation and record keeping not required
• Regs. 1.274-5T(k)
Qualified Non-personal Use Vehicles
• Clearly marked police and fire vehicles
• Unmarked vehicles used by law enforcement officers
• The officer must be:
1. Authorized to carry firearms
2. Execute search warrants
3. Make arrests
Qualified Non-personal Use Vehicles continued
• An ambulance or hearse
• 20 passenger bus or school bus
• Vehicle designed to carry cargo with a loaded gross weight over 14,000 lbs.
• Delivery trucks with driver seat only, or driver plus folding jump seat
Categories for Pick Up Trucks:
1. Vehicle is clearly marked with permanently affixed
decals or with special painting, AND2. is equipped with at least one of the following:
--hydraulic lift gate, --permanently installed tanks or drums,--permanently installed side boards or panels
materially raising the level of the sides of the bed of the pickup truck,
--other heavy equipment, such as: electric generator, welder, boom, or crane used to tow automobiles and other
vehicles.
Categories for Pick Up Trucks:
3. Vehicle is clearly marked with permanentlyaffixed decals or with special painting, AND
4. Is actually used primarily for transporting a particular type of load other than over the public highway in connection with construction, manufacturing, processing, farming, mining, drilling, timbering, or other similar operation, AND 5. Has been specially designed or modified to a significant degree for such use.
How a Van Qualifies:1. Van is clearly marked with permanently affixed
decals or with special painting, AND2. Has a seat only for the driver or the driver and one
other person, and 3. Has either:
a. permanent shelving installed that fills most of the cargo area, or
b. the cargo area is open and the van constantly (during both working and nonworking hours)
carries merchandise, material, or equipment used in
the employer's trade, business, or function.
This Qualifies:
Sorry- No:
Definitely Not!
This Qualifies:
Because it has this:
Educational Assistance
• IRC 127• Not required to be job related
• Separate written plan• Exclude up to $5,250 per year• Nondiscriminatory • Includes graduate level courses• Tuition, books, fees, equipment & supplies
– Unless employee can keep tools or supplies (excludes books) when course ends
Educational Assistance
• IRC 132(d)
• Job Related
• Any form of Educational instruction or training
• May discriminate
• No written plan required
• No dollar limitation
Educational Assistance
• IRC 132(d) continued• Must be:
– Job Related– Maintain or improve job skills– Be required by Employer or by Law
• May NOT:– Meet minimum educational requirements of
current job– Qualify employee for new trade or business
Awards and Prizes
• Cash Prizes or awards are always taxable
• Performance awards are always taxable
• Non-cash: – Use Fair Market Value
• IRC 74
FORM W-9
• Who Must use Form W-9?– Anyone required to file an information
return with IRS– Use Form W-9 or an Acceptable
Substitute
• Who Does Form W-9 apply to?– Any US person
• Including Resident Aliens
Form W-9
• Use to obtain a correct Taxpayer Identification Number (TIN)
• Anyone required to file an information return with IRS must use Form W-9 or substitute
• Applies to any US person including Resident Aliens
• IRC 6041A(f) requires vendors to furnish information
NO W-9 INFORMATION• No TIN — Payments subject to Backup
Withholding– IRC 3406(a)
• Backup Withhold 28% - Publication 1281- Form 1099 instructions
• File 945 to report withholding
• Get the W-9 information before job is awarded
Form 1099-MISC Reminders
• Form 1099-Misc required to report payments of $600 or more for the year for:
• Services or a combination of services and products (including parts and materials)
• Rents• Medical/Health Care payments• Attorneys• Prizes/Awards• Other Income
Payments to be Reported• Paid in the course of your trade or business
– This includes payments made by Federal, State and Local Governments
• Paid to:– Individuals– Partnerships– Certain LLC’s (single owner and partnership)– Estates and Trusts– Certain Corporations
Instructions for Forms 1099, 1098, 5498, and W-2G
Examples of Service
• Auto repair• Construction• Custodial• Maintenance• Landscapers• Locksmiths• Referees• Printing Services
• Professional Services
• Accountants
• Appraisers
• Architects
• Consultants
• Engineers
• Advertising
General Exemptions to Filing Form 1099-MISC
• Payments for products only • Wages/Fringe Benefits paid to Employees• Payments to organizations exempt from tax
under IRC 501(a)• A state or political subdivisions• Payments to Corporations
• Exceptions:• Payments to medical and health care
providers • Payments to Attorneys for legal services
Payments Reportable to Corporations
Medical and Health Care Payments•$600 or more reported in Box 6•Medical Payments include:
-Doctor’s fees, Drug testing, Lab fees,
Physical therapy-Regulation 1.6041-3
•Do not report payments to tax exempt hospitals or pharmacies
Instructions for Forms 1099, 1098, 5498, and W-2G
Payments Reportable to Corporations
Payments to Attorneys• Attorney’s Fees
– Reported in Box 7– Payments of $600 or more
• Gross Proceeds paid to Attorneys– Report in Box 14– Any Amount Paid– Don’t report in Box 14 if reported in box 7
• IRC 6045(f)
Shouldn’t be on 1099-MISC
• Payments to employees
– Fringe benefits
– Travel reimbursements• if taxable, travel reimbursements and
auto expenses should be included in wages and reported on W-2
Common Errors
• Failure to obtain identifying information before making payment (use Form W-9)
• Failure to aggregate payments from all expense categories (use vendor files)
• Assuming payee is a corporation:– because name is “Company or Associates”– because an EIN is furnished
Information Return Penalties
Failure to File by Due Date
• Correctly file by March 31-- $15/return
• Correctly file between April 1 and July 31-- $30/return
• Correctly file after August 1-- $50/return
• IRC 6721
Failure to Furnish to Payee
• $50 per Information Return not filed
• IRC 6722
Information Return Penalties
TIN Matching Program
• Allows authorized designees to submit TIN/Name combination to match against IRS records
• Matching completed prior to filing information return
• Via Text File Submission– Up to 100,000 Payee TIN/Name combinations
• Submitted on-line– limited to 25 requests per session
Taxpayer Identification Number (TIN)
• TINs include:– SSN - Social Security Number– EIN - Employer Identification Number– ATIN - Adoption Taxpayer Identification
Number– ITIN - Individual Taxpayer Identification
Number
Registration/Application
• Every user must register to use e-services– Register at e-services page at www.irs.gov
• E-file logo or• Tax professionals, e-services, new products now
available
– Get PIN and password
• Free Service—No User Charge
List of Resources
• Business and Specialty Tax line 1-800-829-4933• EFTPS hotline 1-800-555-4477• Employee Plans Taxpayer Assistance 1-877-829-5500• Form 941 Online filing program (E-help) 1-866-255-0654• To get IRS Forms 1-800-829-3676• Copy A, Form W-2 reporting questions, SSA employer
reporting service 1-800-772-6270 or [email protected]
• Information reporting program customer service 1-866-455-7438 or [email protected]
• Information reporting web page www.irs.gov/smallbiz
List of Resources
• The quarterly “Federal, State and Local Governments Newsletter” is available on the IRS Web site at www.irs.gov/govts.
• The Taxable Fringe Benefit Guide provides basic information for determining the taxability, withholding, and reporting requirements regarding employee fringe benefits. This resource guide can be found at www.irs.gov/govts , link to Educational Products, then on the Taxable Fringe Benefit Guide 119 pages
Trudee Billo (419) [email protected]
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