Tax Exempt & Government Entities Federal, State, and Local Governments Employee or Independent Contractor?

Why? Workers comp. providers Department of Labor State governments Social Security Administration Millions misclassified Prevent future liability Employers fail to deposit their full share Workers miss out on benefits

Objectives Define an employee under the Internal Revenue Code Determine whether a worker is an employee or independent contractor Report payments to workers Get assistance using Form SS-8 Correct for misclassifications (VCSP)

Define “Employee” Internal Revenue Code & Treasury Regulations: Common law Specific tax statute Section 218 defined

Public Officials Mayor Legislator or elected representative County commissioner Judge/justice of the peace County/city attorney, marshal, sheriff, constable Registrar of deeds Tax collector or assessor Road commissioner Board members

Common-Law Employee An employer-employee relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to result, but also as to details and means.

Control Test Worker subject to control over: What is to be done How it is to be done

Common Law Factors Revenue Ruling Factors

Categories of Control Common law recognizes 3 categories of evidence to consider when making a determination of employee status: 1.Behavioral control 2.Financial control 3.Relationship of the parties

Behavioral Control Indicators: Instruction Training Location of work Work Schedule Meetings Reports Providing services personally

Financial Control Indicators: Equipment, tools, or facilities Unreimbursed expenses Profit motive Frequency and timing of pay Liability coverage

Relationship of the Parties Indicators: Benefits Discharge/termination rights Permanency Integral function

Example Independent Contractors may retain: Right to hire Right to manage & direct workers Right to substitute Right to pay substitute

Example Employees may retain right to: Permanence Benefits Quit

Form SS-8 If you’re unsure of worker status? Complete Form SS-8 for IRS determination Information requested from worker and payer Not an audit

Employee Forms and Filing Requirements: Secure W-4 before paying employees File Form W-2 and W-3 Form 941 for Employment Tax Withholding

Independent Contractor Forms and Filing Requirements: W-9 info. before vendor payment File Form 1099-MISC and 1096 Form 945 for Backup Withholding

Recap 1.Define an employee the right to control and direct the individual 2.Determine whether a worker is an employee or independent contractor three broad categories of evidence 3.Report payments to workers W2 Wages or 1099-Misc 4.Need Help? Use Form SS-8

Mayor & Council Member How to report their compensation? Each receive $100 per month Currently reported on Form 1099-Misc Elected officials specifically identified as employees in tax law Employment taxes and W-2 required

Monday Public School District Additional Duties & Control Relationship Full time duties in principal’s office Occasional duties for athletic director Currently receives W-2 & 1099-Misc Additional duties do not change school district’s control as employer Employment taxes and W-2 required

Voluntary Classification Settlement Program Partial relief from federal employment taxes with reclassification: Certain eligibility requirements apply Form 8952, Closing Agreement See Announcement “Voluntary Classification Settlement Program”

Resources Revenue Ruling 87-41; Twenty Common Law Factors Form SS-8 Publication 963 Publication 15-A Publication 1779

Resources To find an FSLG specialist in your state Keyword Search: FSLG Newsletterwww.irs.gov Pre-recorded IRS Webinars Voluntary Classification Settlement Program (VCSP): Employed/Voluntary-Classification-Settlement-Programwww.irs.gov/Businesses/Small-Businesses-&-Self- Employed/Voluntary-Classification-Settlement-Program To find your State Social Security Administrator:

24 Department of the Treasury Internal Revenue Service Thank you!