Payroll ForumPayroll Compliance Group

August 5, 2014

PAYROLL COMPLIANCE GROUP (PCG) Debra Cormier – State Payroll Compliance Administrator

Debra.Cormier@state.de.us 302-672-5543

Statewide Payroll Regulatory Compliance Payroll Policies

Debbie (Hurd) Ide – Payroll Compliance Office Deborah.Ide@state.de.us 302-672-5506

Payroll Planner Internal Control Plans Payroll Administration Training Delivery

Micheale Lessard– Payroll Compliance Analyst Micheale.Lessard@state.de.us 302-672-5517

Payroll Authorizations Wage Overpayments / Repayments Wilmington City Wage Tax Direct Deposit Participation Funding Reconciliations

AgendaRecords Retention presented by Kit

Carson, Delaware Public ArchivesSurvey QuestionsCompliance Examination:

Resident/Nonresident AliensOpen Discussions:

Worker ClassificationWilmington City Wage Tax

On the Horizon

Delaware Public Archives

Presented by Kit CarsonFor more information and a copy of the presentation:Contact Kit Carson

Rodney.carson@state.de.us302-744-5021

http://archives.delaware.gov/govsvcs/govsvcs.shtml

Compliance Examination

Resident vs. Nonresident Aliens

Resident and Nonresident AliensCompliance Examination

Resident and Nonresident Alien Employees Spreadsheet – Distributed 06/26/2014

Responses Were Due On 07/21/201442% received To Date

(Have you Submitted Yours Yet?)

The Clock is Ticking!

If you have not already done so…Please complete your spreadsheets as soon

as possible. PCG is reviewing tax setups for all alien employees and contacting

Organizations to make necessary corrections in the PHRST system to ensure Calendar Year 2014 is reported accurately.

Payroll - The Buck Stops Here!

You don’t have to “know” all the rules…You just have to know where to find them!

PCG Bulletin 2014-002 – Tax Treatment of Income Paid to Aliens

PCG Tax Residency Decision TreePCG Teamwww.IRS.gov

Gets Colle

cted

Common ErrorsJ-1 Visa OASDI/Medicare Exemption

First Two Calendar Years – Incorrect Exempt Status

Continue Exempt Status after Two-Year PresenceCounting Years Incorrectly

Nonresident Alien – Invalid W-4sMay Only Claim Single or Married Filing

SeparatelyMay Only Claim Zero or One Allowance

Substantial Presence TestDays of Presence in the U.S. vs. Working Days

Common ErrorsIncome Tax Treaties:

No Federal Income Tax (FIT) Exemption Unless a Tax Treaty Exists.

FIT Tax Treaty Terms Vary From Country to Country.

Years of FIT Exemption Differ from OASDI/Medicare Exemption.

Failure to Enforce Earnings Limitation (F-1 Visa).Failure to Maintain Records That Substantiate

Tax Setup.

OPEN DISCUSSIONWorker Classification

Worker ClassificationOrganizations Periodically Hire

Workers as Independent Contractors.Circumstances of the Engagement

Dictate the Appropriate Worker Classification.

Regulatory AgenciesCongress and the IRS believe that the use of

independent contractors has led to an ever-widening “tax-gap” in lost payroll tax revenues from misclassified workers.

The U.S. Department of Labor is considering a survey to explore the extent and nature of independent contractor misclassification as part of its ongoing misclassification initiative.

IRS receives employment tax referrals from agencies administering workman’s compensation & unemployment.

Employees

Individuals perform services for your Organization; and,

someone at your Organization controls what

is done AND how it is done.(Treas. Reg 31.3121(d)-1(c)(1))

ControlIt does not matter if an

employer exercises the right to control how and when the

work is done; it only matters that the employer has the right to control it.

Independent Contractor

Employers/Payers have the right to control or direct

only the result of the work done, not the means and

methods of accomplishing the result.

Where’s The Harm?IRS loses millions of dollars in uncollected income,

Social Security, and Medicare taxes because of misclassification of independent contractors.

Employers are generally subject to imposition of fines and penalties, and are liable for back-taxes.

Misclassified Workers lose work credits used to calculate social security and pension benefits.

Misclassified Workers are not eligible for health benefits (Affordable Care Act implications).

Misclassified Workers are not eligible for unemployment benefits.

Correct ClassificationLook at the entire picture. There is no magic number of factors that

make the determination.No one factor can stand alone. Some factors may be relevant in one scenario

but not relevant in another.Document each of the factors you used to

come up with the determination.

Payroll - The Buck Stops Here!

You don’t have to “know” all the rules…You just have to know where to find them!

PCG Bulletin 2014-003 – Worker ClassificationWorker Classification Decision ToolPCG TeamForm SS-8 – Determination of Worker Status for

Purposes of Federal Employment Taxes and Income Tax Withholding (IRS Form)

Gets

Collected

OPEN DISCUSSION

Wilmington City Wage Tax

State Employees pay $3,400,000 WCWT annually.

DOA receives an Annual Tax Bill for Uncollected WCWT (Average $14,000).

PCG Reconciles the bill with the City.

Wilmington City Wage Tax

Employers who operate within the State of Delaware have a statutory responsibility to collect and remit earned income tax to the City of Wilmington (City).

Failure to collect and remit the tax to the City subjects the employer to joint liability for the tax, as well as all accrued penalties, interest and other charges.

Wilmington City Wage Tax

Who is subject to the earned income tax? All residents of the City (as per Address

Coding Guide). Tax is payable on all earned income, regardless of where it was earned.

Any person who works in the City, and earns wages, regardless of where they live.

Earned income tax is calculated as 1.25% taxable gross wages (reduced by pre-tax deductions, and increased by imputed income).

Wilmington City Wage Tax

Important: Tax set up in PHRST must be correct. Address and Work Location changes must

be entered timely. Employee Self Service – Monitor address

changes that affect the tax setup in PHRST.

PCG monitors employee records with mismatched data.

Wilmington City Wage Tax

Untimely updates result in under/over taxation. Correcting the employee tax record involves:

Determining the affected pay period(s) Submitting PHRST Correction Form

One-Time General Deduction Refund/Adjustment. PCG reviews Correction Form and forwards to

PHRST. PHRST corrects WCWT taxable gross and

adjusts tax as appropriate on Payline.

Wilmington City Wage Tax

Payroll - The Buck Stops Here!These rules are pretty simple…Toughest part is determining if an address is

taxable:City of Wilmington Taxpayer AdvisoryCity of Wilmington Address Coding Guide

http://www.ci.wilmington.de.us/docs/37/EIT_flyer.pdfPHRST Proc. PRU-TAX-01 – Update Employee

Tax DataPCG Team

Gets

Collected

Questions

Reminders Coming Soon!Internal Control Plan SubmissionResident/Nonresident Alien Worksheet

SubmissionPayroll Repayment WorkshopNext Forum: Late Fall 2014

On the Horizon….