Employment Tax Issues 2/20/2014 Eugenia Tabon. Applies to tax years beginning after 12/31/2012...

Employment Tax Issues

2/20/2014

Eugenia Tabon

• Applies to tax years beginning after 12/31/2012

• Employers are required to withhold 0.9 percent AdMT on wages or compensation paid to an employee in excess of $200,000 in the calendar year

• A new line 5(d) for reporting AdMT withholding was added to Form 941

• The amount withheld will be reported with regular Medicare tax on Form W-2 Box 6

Additional Medicare Tax(AdMT) – Employers

• Provides for 0.9 percent AdMT on wages, compensation and self-employment income received above certain threshold amounts

• Thresholds amounts based on filing status

• Threshold amounts:

–Married Filing Jointly: $250,000

–Married Filing Separately: $125,000

–All others: $200,000

AdMT – Employee

• Individuals can’t request withholding specifically for AdMT, but may request additional income tax withholding on Form W-4

• Individuals may also need to consider making estimated tax payments

• 2013 – 1040 “True Up”

• Applies to tips and SE Income if in excess of the applicable threshold amount

• No employer match

AdMT – Takeaways

• J and L file a joint return

• J has $150,000 in wages and L has $160,000 in wages

• Neither one’s wages in excess of $200,000 thus no withholding by their employers

• Combined $310,000 in wages is more than the $250,000 threshold for joint filers

• J and L are liable to pay additional Medicare Tax on $60,000, or $540

AdMT – Example

• Form W-9

• Secure correct TIN right from the start

• Issue Forms 1099-MISC

• IRS CP 2100 or CP 2100A for returns filed with missing or incorrect TINs

• Payer may be required to backup withhold for missing and incorrect name/TINs

• Information return penalties

Form 1099-MISC Compliance

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

Independent Contractor or 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

Independent Contractor or Employee

• Originally released 9/21/2011

• Eligibility expanded January 2013

• Simple application and process

• Audit protection for past years

• Taxpayer agrees to:

–Prospectively treat a class or classes of workers as employees

• Small payment required – just over 1 percent of compensation

Voluntary ClassificationSettlement Program

Eligible Businesses:

•Must have consistently treated workers as nonemployees

•Must have filed Forms 1099 for nonemployees for previous three years

•Cannot be under examination by IRS

•Cannot be under examination by DOL or state regarding worker classification

•Can be tax-exempt organization or gov entity

VCSP Eligibility

• Zero (or very small) wages paid and significant distributable income

• Officer performs significant services

• Employment taxes reduced or eliminated

• Case study: Watson

Compliance Focus1120S Officers’ Compensation

• Business connection - Reg. §1.62-2(d)

• Substantiation - Reg. §1.62-2(e)

• Return of excess - §1.62-2(f)

• Compliance issues:

–Travel reimbursements

–Tool reimbursements

Compliance FocusAccountable Plans

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Individual Taxpayer Identification Number (ITIN)

• IRS issues ITINs to individuals required to have a U.S. taxpayer identification number and are not eligible to obtain an SSN

• Effective Jan 1, 2013, the IRS implemented new procedures affecting

– Application process

– Acceptance Agent Program

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ITIN Program Changes Application Process

Changes impacting individuals:

• Applying directly to the IRS, only original identification documentation or copies certified by the issuing agency accepted

• Other avenues available for verification of key documents

• ITINs issued for a five-year period rather than indefinite

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ITIN Program Changes Acceptance Agent Program

Changes impacting Certifying Acceptance Agents:

• CAAs allowed to use Form W-7 COA (Form 14194) certifying ITIN application documents reviewed / verified

• Attach original or certified documents to COA

• New / stronger due diligence requirements

– CAAs must be covered under Circular 230– Complete forensic training by 12/31/13

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Identity Theft

• Stopping identity theft and refund fraud is a top priority for the IRS

• Efforts expanded in 2013

– Fraud prevention

– Early detection

– Victim assistance

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• Increased identity theft screening filters

• Increased number of identity theft investigations

• Nationwide enforcement sweeps

Identity Theft – Fraud Prevention

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Two identity theft programs expanded in 2013:

• Taxpayer Protection Program Law

• Enforcement Assistance Program

Identity Theft – Early Detection

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Two identity theft programs expanded in 2013:

• Taxpayer Protection Program Law

• Enforcement Assistance Program

Identity Theft – Early Detection

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• Identity Protection Personal Identification Numbers expansion

• Victim case resolution

• Expanded service options:

– Identity Protection Specialized Unit (800.908.4490)

– Free credit monitoring

Identity Theft – Victim Assistance

Pervasive Telephone Scams

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

• Scammers may be able to recite the last four digits of a victim’s Social Security Number.

• Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

• Victims hear background noise of other calls being conducted to mimic a call site.

• After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

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E-Services

Disclosure Authorization and Electronic Account Resolution

•Retired on Sept 2, 2013

•Former DA users, mail / fax completed Form 2848 or Form 8821 to IRS

•Former EAR users, call Practitioner Priority Service® to resolve account-related issues

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e-services secure mailbox

Transcript Delivery System

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Additional E-Services

• TIN matching

• Income Verification Express Services

• Preparer Tax Identification Number application

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Issue 5: Online Tools & Resources Pages 371-376

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Online Tools and Resources

Popular online tools used by tax professionals:

• Affordable Care Act tax provisions

• Information reporting center

• Tax Trails / Interactive Tax Assistant

• First-Time Homebuyer Credit

• Exempt organizations

• Calculators

– Income tax withholding

–Sales tax deduction

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Online Tools and Resources

Popular online tools used by tax professionals:

• Where’s My Amended Return?

• Online Transcript Orders

• Online Payment Agreement

• Offer in Compromise Pre-Qualifier Tool

• Online Employer Identification Number

•Foreign issues

• Electronic subscriptions services

“Get Transcript”

Get Transcript Landing Page

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• Electronic filing

–118.8 million Individual returns electronically filed in calendar year 2012

–140.5 million projected for CY2020

• Centralized Campus Operations

–Improve efficiency

–Increase consistency

IRS Campus Operations

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Available to all practitioners with valid third party authorizations; services include:

• Locating and applying payments

• Resolving taxpayer account problems

• Explaining IRS communications

• Providing procedural guidance

• Providing transcripts of taxpayer accounts

• Provide Forms 1099 and W-2 information

• Securing taxpayer income verification

Practitioner Priority Service®

E-News for Payroll Professionals

IRS e-newsletters now include a icon at the top right and bottom left of each issue

Click on the icon and bring up more than 300 ways to “bookmark and share” the information

Recipients can:– Post it on Facebook– Tweet it on Twitter– Place it in a blog– Choose other ways to share the pre-packaged

link

Payroll Professionals Tax Center

Third Party Reporting Information Center

IRS Video Portal

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• Provides mechanism for raising concerns

–IRS policies, practices and procedures

–Systemic problems

• Facilitates issue identification, resolution and feedback

Issue Management Resolution System

What’s New on IRS.gov

Topic Search Word(s)

Electronic Newsletters (payroll providers, small businesses and tax professionals)

e-news subscribe

Multimedia Center (audio, video and text) multimedia center

Social Media (iTunes, podcasts, Twitter, widgets, YouTube and IRS2Go mobile app) *Follow IRS on Twitter @IRSTaxpros

new media

Video Portal

- Your Guide to an IRS Audit

- Virtual Small Business Tax Workshop

www.irsvideos.gov

Basic Tools for Tax Professionals basic tools

E-Services – Online Tools for Tax Pros Eservice

Tax Information for Tax Professionals information for tax professionals

Thank you!

Eugenia.Tabon@irs.gov

336-574-6404