Employment Tax Issues

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Employment Tax Issues
Richard G. Furlong, Jr.Senior Stakeholder
Liaison Small Business Self-Employed Division

• Maine Line Association for Continuing Education
• Penn State Great Valley Conference Center
• October 16, 2014

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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

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Additional Medicare Tax(AdMT) Takeaways

• Employees cant 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

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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

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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

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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

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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

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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

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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

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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)

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Third Party Payers
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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

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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

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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

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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).

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Contact Information

• Richard G. Furlong Jr.
• Senior Stakeholder Liaison
• 215-861-1551
• richard.g.furlong_at_irs.gov