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Employment Tax Issues

Richard G. Furlong, Jr. Senior Stakeholder Liaison Small Business Self-Employed Division. Employment Tax Issues. Maine Line Association for Continuing Education Penn State Great Valley Conference Center October 16, 2014. Additional Medicare Tax (AdMT) for Employers.

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Employment Tax Issues

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  1. Richard G. Furlong, Jr.Senior Stakeholder Liaison Small Business Self-Employed Division Employment Tax Issues Maine Line Association for Continuing Education Penn State Great Valley Conference Center October 16, 2014

  2. Additional Medicare Tax (AdMT)for Employers • Applies to tax years beginning after 12/31/2012 • Employers required to withhold 0.9 percent AdMT on wages or compensation paid to an employee in excess of $200,000 in the calendar year • New line 5(d) for reporting AdMT withholding added to Form 941 • Withheld amount reported with regular Medicare tax on Form W-2, Box 6

  3. Additional Medicare Tax(AdMT) Takeaways • Employees can’t request AdMT withholding but may request additional income tax withholding on Form W-4 • TIP – Applies to tip income and SE Income if in excess of the applicable threshold amount • No employer match • Form 8959 on Form 1040 • Reconciles AdMT liability • Reconciles AdMT withholding

  4. 1120S Officers’ Compensation Compliance Focus • Zero (or very small) wages paid and significant distributable income • Officer performs significant services • Employment taxes reduced or eliminated • Case study ‒ Watson

  5. Independent Contractoror Employee Three Categories of Evidence: • Behavioral Control ‒ Instruction, evaluation, training • Financial Control ‒ Investment, method of payment, ability to make a profit or incur a loss, services available to others • Relationship of the Parties ‒ Written contract, permanency, integral part of business

  6. Independent Contractoror Employee Tax Court Considerations: • Degree of Control • Investment in Facilities • Options for Profit and Loss • Right to Discharge • Integral Part of Business • Permanency of Relationship

  7. Case Study Peno Trucking

  8. Voluntary Classification Settlement Program • Simple application and eligibility process • Audit protection for past years

  9. VCSP Eligibility • Taxpayer agrees to prospectively treat a class or classes of workers as employees • Small payment required – just over 1 percent of compensation

  10. VCSP Eligibility Eligible Businesses: • Must have consistently treated the class of workers as nonemployees • Must have filed Forms 1099 for the class of workers for previous three years • Must not be under Employment Tax examination by IRS, US DOL, or state regarding worker classification • Can be tax-exempt organization or government entity

  11. Form 1099-MISC Compliance • Secure correct TIN – Form W-9 may be used • Issue Forms 1099-MISC • IRS CP 2100 or CP 2100A for returns filed with missing or incorrect TINs • Backup Withholding for missing and incorrect name/TINs • Information return penalties

  12. Modernized e-File (MeF) • File Forms 940, 941, 944 in single transmission file • Receive complete information regarding location and type of each error identified • Receive acknowledgement of transmissions processed in real time • File balance due returns and authorize electronic funds withdrawals or credit card payment at the same time • Continue to sign returns with IRS issued Personal Identification Numbers (PINs)

  13. Third Party Payers

  14. Payroll Service Providers (PSPs) Many employers outsource their payroll and related tax duties, the 3rd party payers will: • Administer payroll and employment taxes • Provide assistance in meeting filing deadlines and deposit requirements • Streamline business operations

  15. Types of Third Party Payers Common third party arrangements include: • Payroll Service Providers (PSPs) • Reporting Agents • Section 3504 Agents • Professional Employer Organizations (PEOs) Reminder: Employers are ultimately responsible for the payment of income tax withheld (employer and employee portions of social security and Medicare taxes). See Fact Sheet 2013-9 Tips for Employers Who Outsource Payroll Duties

  16. Electronic Federal Tax Payment System The EFTPS is: • Mandatory • Secure, accurate and easy to use • Available to be viewed online after enrollment  • Accessible by an Inquiry PIN The system: • Provides immediate confirmation for each transaction   • Maintains a history for 16 months

  17. Employment Tax Investigations Can result in: • Prosecutions of individuals and companies, acting under the guise of a third party payroll service.  For more information, visit IRS.gov and type in the key search words “employment tax investigations.” • Liabilities for employers who are ultimately responsible for the payment of income tax withheld (employer and employee portions of social security and Medicare taxes).

  18. Richard G. Furlong Jr. Senior Stakeholder Liaison 215-861-1551 richard.g.furlong@irs.gov Contact Information

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