1 Federal, State and Local Government Specialist Donna Richard Internal Revenue Agent

2 Internal Revenue Service County Governments Municipal Governments Federal Agencies State Agencies School Districts

3 FSLG FIELD OPERATIONS FSLG FIELD OPERATIONS FSLG Group (Area) Managers –8 Areas (Groups) –10 FSLG Specialists Per Group FSLG Specialists –About 80 FSLG Specialists Nationwide –Each State has at least one Specialist assigned to it

4 OUTREACH AND AUDIT Conferences Compliance Checks Examination

5 HOT TOPICS HOT TOPICS Section 218 Agreements Required Federal Return Filings Fringe Benefits Worker Classification

6 FSLG HISTORICAL OVERVIEW 1951 Section 218 of the Social Security Act Allowed State and Local Governments to participate in Social Security 1987 IRS Started Collecting FICA from State and Local Governments

7 Form 941 Form W-2 Form 1099 REQUIRED FILINGS

8 Types of Payments/Services Reported on the FORM 1099-MISC ( By Box) Rents – Box 1 Other Income – Box 3 Backup Withholding (BWH)– Box 4 Medical/Health Care Payments – Box 6 Non-employee Compensation – Box 7 Gross Proceeds to Attorneys – Box 14

9 Information Needed From Payee Secure Form W-9 –Upfront when services contracted –Put in Vendor File Provides correct name/TIN combination Provides information to determine whether payee is subject to backup withholding or not Provides perjury statement with signature Limits risk and liability for government entity

10 Who Does NOT Get 1099-MISC? Employees Corporations Except: Attorneys or Medical or Health Care Service Providers Businesses that provide you with: –Merchandise Inventory –Equipment, supplies, parts only* *Parts provided with services are reportable

11 Who Does NOT Get Form 1099-MISC? Contd…. Exempt Organizations IRC §501(c)(3) Governmental Entities

12 Failure to Secure a Vendor’s Social Security Number or Taxpayer Identification Number May Subject Your Agency to BACKUP WITHHOLDING.” (IRC 3406) 28%

13 CP 2100 FROM IRS: Notice tells Payer their responsibility for backup withholding and could be subject to civil penalties on the listed payees Notice provides details of payees with: –Missing TINs, and/or –Incorrect Name/TINs, and/or –Not currently-issued payee TINs

14 Never assume an entity is incorporated! LC – Limited Company LLC – Limited Liability Company LP – Limited Partnership LLP – Limited Liability Partnership

15 FEDERAL STATE AND LOCAL GOVERNMENTS FRINGE BENEFITS

16 WHAT IS A FRINGE BENEFITS? ANY PROPERTY, SERVICE OR CASH (Other than Salary, Provided by Employer) TAXABLE UNLESS EXCLUDED SPECIFICALLY BY LAW –Example: Medical Premiums IRC 106

17 TAXABLE FRINGE BENEFITS: INCLUDE in Employee’s wages and on W-2 (Never on MISC) Subject to Federal Withholding, Social Security and Medicare Even if benefit is received by/for spouse or child of employee

18 NON-TRAVEL FRINGE BENEFITS: Clothing/uniforms Cell phones Awards Bonuses

19 AWARDS ARE TAXABLE CASH PRIZES OR AWARDS are always taxable PERFORMANCE AWARDS are always taxable NON-CASH: –Use Fair Market Value

20 AWARDS EXCEPTIONS: Certain Awards transferred to Charities –Pulitzer, Nobel Peace Prize Certain Employee Achievement Awards –Length of Service, Safety - Not Cash Nominal Holiday/Special Occasion Awards –Coffee mugs, plagues, etc.

21 TRAVEL-RELATED FRINGE BENEFITS: Per Diem Allowances –for lodging, meals and/or incidentals –for business related travel –while away from home

22 MEAL ALLOWANCES WHILE TRAVELING ON BUSINESS: MEALS AWAY FROM HOME: –OVERNIGHT Accountable Plan - Not taxable –NOT OVERNIGHT Taxable as wages

23 MEAL ALLOWANCES WHEN NOT TRAVELING: Meals with business meetings - – NOT taxable if: clear business setting directly related Employer buys you lunch - – Taxable as wages

24 EMPLOYER-PROVIDED VEHICLE: HOW DOES EMPLOYEE ACCOUNT FOR PERSONAL USE? Personal Use is taxable Verified Business Use is not taxable Employee can reimburse Employer for personal use

25 VALUING PERSONAL USE - THREE RULES: Automobile Lease Valuation Rule* Cents-Per-Mile Rule Commuting Rule

26 Non-Taxable Fringe Benefits: No additional cost service Qualified employee discounts Working condition fringe De minimis fringe Qualified transportation expenses Qualified Moving Expense Reimbursements

27 REMEMBER: taxable If the benefit is taxable: –Determine the Value of the benefit – Include it in Wages and W-2

28 Independent Contractor vs. Employee

29 How do you make this determination?

30 Employee or Independent Contractor? Determine the Worker’s Status Who has the right to control the worker? –3 Categories of Evidence Behavioral Control Financial Control Relationship of the Parties

31 Right to direct and control The right to direct and control the means and details of the work

32 BEHAVIORAL RELATIONSHP: IF the firm provides instructions: –on how to do the job, – what hours to work, what days, etc., – the worker is most likely an employee.

33 FINANCIAL CONTROL: If the firm provides an office, – all office supplies, computer – and other business equipment to the worker, – the worker is an employee.

34 RELATIONSHIP OF THE PARTIES: If the firm provides benefits: – health insurance, life insurance, – retirement benefits, 40l(k) plan, 403(b) –the worker is an employee.

35 INDEPENDENT CONTRACTOR 4 Offers services to public 4 Operates own business 4 Bills for services 4 Doesn’t have to personally perform work

36 COMMON MISCONCEPTIONS: EMPLOYEES CAN BE: 4 Part-time workers 4 Temporary workers 4 Probationary period 4 Workers who say they are Independent Contractors

37 State Laws Worker may be an employee for Federal Law purposes and an independent contractor for State purposes,or vice versa.

38 Dual Status Worker – 1 Entity Employee –Accountant –Wages on Form W-2 –Withhold FITW –Withhold FICA Independent Contractor –Janitorial Services –Compensation on Form 1099-MISC

39 Examples of Elected and Appointed Officials –Mayor –City Attorney –Judge or Justice of the Peace –Building Inspector –Board Members –Road Commissioner –Animal Control Officer Elected And Appointed Officials

40 Employee –Position established by law –Duties defined by statute –Performs duties as a public official –Responsible to the public –Paid out of governmental funds Elected And Appointed Officials

41 LOOK AT THE FACTS No single fact provides the answer Weigh all of the evidence

42 Publication 15, “Circular E, Employer’s Tax Guide” Publication 15-A, “Employer’s Supplemental Tax Guide” Publication 15-B, “Employer’s Tax Guide to Fringe Benefits” Publication 963, “Federal-State Reference Guide “, Catalog #21843B Taxable Fringe Benefit Guide (IRS.GOV) Sources Of Information

43 IRS CONTACTS: IRS INFORMATION CUSTOMER ACCOUNT SERVICES

44 QUESTIONS

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