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 Classification Settlement 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 Focus 1120S 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 Focus Accountable Plans

13 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

14 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

15 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

16 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

17 Increased identity theft screening filters Increased number of identity theft investigations Nationwide enforcement sweeps Identity Theft – Fraud Prevention

18 Two identity theft programs expanded in 2013: Taxpayer Protection Program Law Enforcement Assistance Program Identity Theft – Early Detection

19 Two identity theft programs expanded in 2013: Taxpayer Protection Program Law Enforcement Assistance Program Identity Theft – Early Detection

20 Identity Protection Personal Identification Numbers expansion Victim case resolution Expanded service options: – Identity Protection Specialized Unit ( ) – 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 s 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.

22 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

23 e-services secure mailbox Transcript Delivery System

24 Additional E-Services TIN matching Income Verification Express Services Preparer Tax Identification Number application

25 Issue 5: Online Tools & Resources Pages

26 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

27 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

30 Electronic filing – million Individual returns electronically filed in calendar year 2012 – million projected for CY2020 Centralized Campus Operations – Improve efficiency – Increase consistency IRS Campus Operations

31 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

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IRS Video Portal

36 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 TopicSearch 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 new media Video Portal - Your Guide to an IRS Audit - Virtual Small Business Tax Workshop Basic Tools for Tax Professionalsbasic tools E-Services – Online Tools for Tax ProsEservice Tax Information for Tax Professionalsinformation for tax professionals

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