Employment Tax Laws Version 08.a LAUSD Small Business Boot Camp

Presenters IRS Anthony Sykes IRS Presenter EDD Jimmy Wong Taxpayer Education and Assistance Taxpayer Assistance Center:

Agenda Employee vs. Independent Contractor Reporting Requirements for Independent Contractors Employer Responsibilities Reporting and Deposit Requirements

Employee vs. Independent Contractor

Independent Contractor: An individual who performs services for you, but for whom you control only the result of the work. Employee: An individual who performs services for you and is subject to your control regarding what will be done AND how it will be done. Employee vs. Independent Contractor

Types of Workers Employees –Common law –Statutory Corporate officer Unlicensed construction contractor (state) Independent contractors

Common Law Employment Common law evolved slowly over the years based on court decisions on individual cases. Common law rules of employment are the total of all court decisions on employment.

Common Law Employment (continued) Person who hires an individual to perform services has the right to control the manner and means of performing those services, whether exercised or not. The right to discharge a worker at will and without cause is strong evidence of right to control.

What Can Happen If I Misclassify My Workers? Costly audits by the IRS, the EDD, and the Dept. of Industrial Relations due to: –Worker claims for injury/unemployment. –Worker informants. –Competitor informants. Additional taxes, penalties, and interest. Revocation of state/local licenses.

Voluntary Classification Settlement Program Optional program to reclassify workers Applies to future tax periods Must meet eligibility requirements Apply by filing Form 8952Form 8952 Must enter into a closing agreement

Business and Specialty Tax Hotline Visit IRS.gov –Click on “Businesses” tab, “Employment Taxes” in the left navigation –Search Keyword “worker classification” Worker classification resource handout Resources

Pub 1779, Independent Contractor or Employee Pub 1779 Pub 15 (Circular E), Employer’s Tax GuidePub 15 (Circular E) Pub 15-A, Employer’s Supplemental Tax GuidePub 15-A Form SS – 8, Determination of Worker StatusForm SS – 8 Resources (continued)

DE 44, California Employer’s GuideDE 44 DE 231, Information Sheet - EmploymentDE 231 DE 38, Employment Determination GuideDE 38 DE 1870, Determination of Employment Work StatusDE 1870 Resources (continued)

Employment Status Course Employee or Independent Contractor Tax Seminar EDD Payroll Tax Forms and Publications Resources (continued)

Reporting Requirements for Independent Contractors

Form W-9, Request for Taxpayer Identification and Certification Reports: –Payee’s correct name –Payee’s Taxpayer Identification number

Backup Withholding Requirements Withhold 28 percent of income if: –Payee does not provide TIN –Payee provides incorrect TIN –IRS notifies payer of incorrect TIN Withholding time frames –begin with first payment over $600 –until payee provides correct TIN

TIN Matching Program Benefits: –Match payee name with Form W-9 –Match TIN with IRS records –Decrease backup withholding and penalty notices –Reduce the error rate in TIN validation e-services verification available

California Backup Withholding Requirements If required to remit federal backup withholding to IRS, withhold 7 percent of income. Remit to Franchise Tax Board:

Reporting Independent Contractors to EDD DE 542DE 542, Report of Independent Contractor(s) –$600 or more for services in a calendar year. –Applies to services provided by sole proprietor.

Form 1099-MISC Filing Requirement Report payments of $600 or more paid in the course of your trade or business to non-employees annually. Report payments of at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest. Provide required copies timely to: –Payees by January 31 –IRS by last day of February Exception awareness

Potential Penalties Failure to file correct information returns by due date Trust fund –imposed when taxes withheld are not sent to IRS –100% of taxes, for taxes not sent to IRS –potential backup withholding for payer

Form 945 to IRS, due January 31 Form 1099-MISC to:Form 1099-MISC –Independent contractor, due January 31 –IRS, due last day of February Form 1096 (with Forms 1099) to IRS, due last day of FebruaryForm 1096 NOTE: Obtain Form W-9 from independentForm W-9 contractor prior to first payment. Federal Forms and Due Dates

Employer Responsibilities

Employer’s Federal Requirements Obtain Federal Employer Identification Number with Form SS-4Form SS-4 Complete federal forms –W-4, Employee’s Withholding Allowance CertificateW-4 –Form I-9, Employment Eligibility VerificationForm I-9 Notify IRS of address change

Obtain a Workers’ Compensation Insurance policy. Apply for state employer account number. DE 1, Registration Form for Commercial Employers DE 1 Employer’s State Requirements

When Hiring New Employees Obtain DE 4, Employee’s Withholding Allowance Certificate, if status/allowances claimed differ from Form W-4.DE 4 Submit DE 34, Report of New Employee(s).DE 34

Employee Notification Requirements DE 35, Notice to EmployeesDE 35 DE 2511, Paid Family LeaveDE 2511 DE 2515, State Disability InsuranceDE 2515 DE 2320, For Your BenefitDE 2320 Written separation notice to employees.Written separation notice to employees

Posting Requirements Generally, federal and state laws require that employers post complete, up-to-date versions of labor notices and other required posters. Current posting requirements are available at:

Recordkeeping Maintain wage, earning, deduction, and withholding records on employees. Provide earning statements to each employee, each payday. Retain employee records and returns for at least four years.

Reporting and Depositing Requirements

Employer pays: FUTA: 0.6% for the first $7,000 paid to each employee as wages during the year FICA Social Security: 6.2% on first $117,000 (wage base limit) FICA Medicare: 1.45% on all wages 2014 Federal Payroll Taxes

Employee pays: FICA Social Security: 6.2% on first $117,000 (wage base limit) FICA Medicare: 1.45% on all wages Federal Income Tax: Refer to Pub Federal Payroll Taxes (continued)

2014 State Payroll Taxes STATE UI Unemployment Insurance ETT Employment Training Tax SDI State Disability Insurance PIT Personal Income Tax (State Income Tax) Employer pays3.4%0.1% Employee pays1.0%Refer to DE 44 Wage Limit$7,000 $101,636None

Electronic Federal Tax Payment System Methods –Visit –Call toll-free Free Available 24/7 Taxpayers guided through process Third party deposit verification

State Electronic Filing and Payment Methods e -Services for Business Fast, easy, and secure ways to manage your payroll taxes online. View and edit your returns/reports prior to submission. Available 24 hours a day, 7 days a week.

State Payroll Tax Deposit Methods DE 88, Payroll Tax DepositDE 88 Electronic Funds Transfer Credit Card (Telephone or Internet)

State Payroll Tax Reporting Forms DE 88, Payroll Tax Deposit DE 88 DE 9, Quarterly Contribution Return and Report of WagesDE 9 DE 9C, Quarterly Contribution Return and Report of Wages (Continuation)DE 9C

Forms and Due Dates StatePeriodDue by DE 9 DE 9C 1st Quarter April 30 Jan., Feb., March DE 9 DE 9C 2nd Quarter July 31 Apr., May, June DE 9 DE 9C 3rd Quarter October 31 July, Aug., Sep. DE 9 DE 9C 4th Quarter January 31 Oct., Nov., Dec.

Federal Payroll Tax Reporting Forms Form 941, Employer’s Quarterly Federal Tax ReturnForm 941 Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax ReturnForm 940 –Schedule A, Multi-State Employer and Credit Reduction Information ReturnSchedule A Form 944, Employer’s Annual Federal Tax ReturnForm 944

Federal Payroll Tax Reporting Forms (continued) Form W-2, Wage and Tax StatementForm W-2 Form W-3, Transmittal of Wage and Tax StatementsForm W-3

Form 941, Quarterly Federal Tax Return First Quarter (Jan. - March) due April 30 Second Quarter (April - June) due July 31 Third Quarter (July - Sept.) due Oct. 31 Fourth Quarter (Oct. - Dec.) due Jan. 31

Penalty and Interest Prevention Classify workers properly. File all documents and returns timely. Make all payments timely and in full. Use electronic filing and payment methods to reduce errors. Respond timely to all correspondence.

California Tax Service Center

Thank You! Questions?