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Ohio Soil and Water Conservation Districts April 15, 2008 Trudee Billo Federal State and Local Government Specialist 419-522-2359

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Presentation on theme: "Ohio Soil and Water Conservation Districts April 15, 2008 Trudee Billo Federal State and Local Government Specialist 419-522-2359"— Presentation transcript:


2 Ohio Soil and Water Conservation Districts April 15, 2008 Trudee Billo Federal State and Local Government Specialist

3 Federal Agencies State Agencies Municipal Governments County Governments School Districts F S L G


5 INDEPENDENT CONTRACTOR DEFINED Not subject to the control or direction of another as to the means and methods for accomplishing a result. –Reg (d)-1(c)

6 EMPLOYEE DEFINED: IRC 3121(d) and Reg (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

7 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

8 Publication 963, chapter 37 FACTORS: Review factors involved in worker classification to assure proper tax treatment: Behavioral Control Financial Control Relationship of the Parties

9 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

10 Evaluation Systems measures compliance with performance standards Training Periodic 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 – Contd

11 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

12 RELATIONSHIP OF THE PARTIES Written contracts Employee benefits Discharge/Termination

13 Employees... Some Factors that may indicate workers are employees: Required to wear uniforms Required to work certain hours Do not handle own sales receipts Do not make own appointments Owner provides training Owner provides supplies and materials Stands no risk of loss

14 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:

15 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

16 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

17 Resources Publication determination on status of worker as either an independent contractor or an employee Publication 963 Chapter 3 Revenue Ruling – 20 common law factors IRC 3401


19 Fringe Benefits Any property, service or cash (other than salary) –Provided by employer Taxable unless excluded specifically by law –Example: Medical Premiums IRC 106

20 Taxable Fringe Benefits Include in Employees wages and on W-2 (Never on 1099-MISC) Subject to Federal Withholding, Social Security and Medicare Include on Form(s) 941withhold and pay taxes Even if benefit is received by/for spouse or child of employee

21 Accountable Plan Business Connection Adequate accounting by employee in reasonable time period Excess reimbursement returned in a reasonable time period

22 Non-accountable Plan Does not meet all 3 requirements for an accountable plan Benefit is fully taxable when paid

23 NON-TAXABLE FRINGE BENEFITS No additional cost service Qualified employee discounts Working condition fringe De minimis fringe Qualified transportation expenses Qualified Moving Expense Reimbursements

24 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

25 Working Condition Fringe Use must relate to the employers 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

26 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

27 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

28 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

29 Meals May Exclude: Meeting treats, parties, & picnics De minimus meals that are occasional & difficult to account for Meals furnished on business premises for employers convenience Employer buys you lunch –if provided to promote goodwill or improve morale – Taxable as wages

30 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

31 Meal Money Allowance/Reimbursement : Meals away from home: –Overnight Accountable Plan - Not taxable –Not Overnight Taxable as wages

32 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

33 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

34 Cell Phone Examples Plan is 500 min. & Employee used 400 minutes total. 50 minutes used personally. Personal use is still taxable even though Employee didnt go over total plan minutes If using free nights/weekends minutes--still personal use and is taxable If no Employee accountability (they dont keep track of personal calls) then tax entire phone bill each month

35 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

36 Uniforms May 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 (c)(1)

37 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 Not enough that the employee does not wear the clothing away from work –Pevsner v. Commissioner 628 F.2d 467

38 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)

39 Automobile Expenses Employee car used for employers business –2007 Federal Mileage Rate –2008 Federal Mileage Rate At this rate or less: Non-taxable to employee Excess over rate: Taxable to employee - only the excess amount –Substantiation required

40 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)

41 Employer-Provided Vehicles Personal Use is taxable Business Use is not taxable Employee can reimburse Employer for personal use Commuting is taxable

42 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

43 Valuing Personal Use Lease Valuation rule –Reg (d) Cents-per-mile Rule –Reg (e) Commuting Rule –Reg (f)

44 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

45 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)

46 Lease Valuation Rule 1.Determine FMV of vehicle 2.Use table in Reg (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

47 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

48 Qualified Non-personal Use Vehicles Must have policy restricting personal use Commuting is non-taxable to employee Substantiation and record keeping not required Regs T(k)

49 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

50 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

51 Categories for Pick Up Trucks: 1. Vehicle is clearly marked with permanently affixed decals or with special painting, AND 2. 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.

52 Categories for Pick Up Trucks: 3. Vehicle is clearly marked with permanently affixed 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.

53 How a Van Qualifies: 1.Van is clearly marked with permanently affixed decals or with special painting, AND 2.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.

54 This Qualifies:

55 Sorry- No:

56 Definitely Not!

57 This Qualifies:

58 Because it has this:

59 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

60 Educational Assistance IRC 132(d) Job Related Any form of Educational instruction or training May discriminate No written plan required No dollar limitation

61 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

62 Awards and Prizes Cash Prizes or awards are always taxable Performance awards are always taxable Non-cash: –Use Fair Market Value IRC 74


64 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

65 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

66 NO W-9 INFORMATION No TIN Payments subject to Backup Withholding –IRC 3406(a) Backup Withhold 28% - Publication Form 1099 instructions File 945 to report withholding Get the W-9 information before job is awarded

67 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

68 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 LLCs (single owner and partnership) –Estates and Trusts –Certain Corporations Instructions for Forms 1099, 1098, 5498, and W-2G

69 Examples of Service Auto repair Construction Custodial Maintenance Landscapers Locksmiths Referees Printing Services Professional Services Accountants Appraisers Architects Consultants Engineers Advertising

70 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

71 Payments Reportable to Corporations Medical and Health Care Payments $600 or more reported in Box 6 Medical Payments include: - Doctors fees, Drug testing, Lab fees, Physical therapy - Regulation Do not report payments to tax exempt hospitals or pharmacies Instructions for Forms 1099, 1098, 5498, and W-2G

72 Payments Reportable to Corporations Payments to Attorneys Attorneys Fees –Reported in Box 7 –Payments of $600 or more Gross Proceeds paid to Attorneys –Report in Box 14 –Any Amount Paid –Dont report in Box 14 if reported in box 7 IRC 6045(f)

73 Shouldnt 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

74 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

75 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

76 Failure to Furnish to Payee $50 per Information Return not filed IRC 6722 Information Return Penalties

77 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

78 Taxpayer Identification Number (TIN) TINs include: –SSN - Social Security Number –EIN - Employer Identification Number –ATIN - Adoption Taxpayer Identification Number –ITIN - Individual Taxpayer Identification Number

79 Registration/Application Every user must register to use e-services –Register at e-services page at E-file logo or Tax professionals, e-services, new products now available –Get PIN and password Free ServiceNo User Charge

80 List of Resources Business and Specialty Tax line EFTPS hotline Employee Plans Taxpayer Assistance Form 941 Online filing program (E-help) To get IRS Forms Copy A, Form W-2 reporting questions, SSA employer reporting service or Information reporting program customer service or Information reporting web page

81 List of Resources The quarterly Federal, State and Local Governments Newsletter is available on the IRS Web site at 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 link to Educational Products, then on the Taxable Fringe Benefit Guide 119 pages

82 Trudee Billo (419) Adams Brown Butler Champaign Clark Clermont Clinton Delaware Fayette Pickaway Pike Preble Richland Ross Scioto Shelby Union Vinton Warren Greene Hamilton Highland Jackson Logan Madison Marion Miami Montgomery Morrow

83 Amy Myers (419) Ashland Athens Belmont Carroll Columbiana Coshocton Fairfield Franklin Gallia Guernsey Harrison Hocking Holmes Jefferson Knox Lawrence Licking Mahoning Meigs Monroe Morgan Muskingum Noble Perry Portage Stark Summit Tuscarawas Washington Wayne

84 Wendy Speelman (419) Allen Ashtabula Auglaize Crawford Cuyahoga Darke Defiance Erie Fulton Geauga Hancock Hardin Henry Huron Lake Lorain Lucas Medina Mercer Ottawa Paulding Putnam Sandusky Seneca Trumbull Van Wert Williams Wood Wyandot

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