1. A Peer-to-Peer Exchange on AAAs Performing Financial Management Services: Managing the "The Boring Part" of Consumer Direction National Resource Center for Participant-Directed Services 2/4/10 Mollie (Grotpeter) Murphy

2. Today Peer-to-Peer exchange as much as possible  If you are doing Financial Management Services in- house, please be thinking about your experience for each topic that is brought up. We want to hear it! General pros and cons of doing FMS “in-house” FMS responsibilities with level of difficulty on a 1 – 10 scale in blue. 1 is easiest; 10 is most difficult.  Based on my experience with organizations that are new to FMS A suggested model for doing FMS “in-house”

3. Pros of Doing “The Boring Part” Allows AAA or SUA to manage all administrative aspects of consumer-directed program Allows AAA or SUA to leverage experience working with population to support individuals with the financial aspect of their program Reduces the number of information and communication hand-offs Allows AAA or SUA to take advantage of economies of scale with a larger program

4. Cons of Doing “The Boring Part” Payroll rules for household employer using employer agent are different than for regular employers; this matters! Could mean that AAA or SUA gets “bogged down” with financial piece and finds it difficult to focus on people AAA or SUA takes on new liability It’s not actually boring; sometimes it’s a little too exciting!

5. Primary FMS Duties Enrollment  Employer enrollment  Worker enrollment  Vendor enrollment Budget Management Payments Taxes and Insurance Reporting Communication

6. Enrollment 5 Once a consumer has decided on the consumer-directed model, he/she needs to be enrolled with the FMS If hiring own workers, must be enrolled as a common law employer of own staff Ensure consumers understand paperwork and employer responsibilities Serious paperwork to do this  IRS Form SS-4, Application for Employer Identification Number  IRS Form 2678, Employer Appointment of Agent  IRS Form 8821, Tax Information Authorization  State Income Tax Account Number Application  State Income Tax Power of Attorney (if applicable)  State Unemployment Tax Account Number Application  State Unemployment Tax Power of Attorney (if applicable)  Workers’ Compensation Application Forms (as applicable)  Consumer agreement for program or FMS (as applicable)

7. Processing Employer Enrollment5 FMS processes all employer enrollment material  Obtain Employer Identification Number from IRS  Obtain State Income Tax Account Number  Monitor when participant becomes liable for State Unemployment Tax and then enroll participant with State Unemployment Tax agency  File all forms with appropriate tax agencies for FMS to have permission to act as employer’s agent (2678, 8821, State Forms Power of Attorney)  Monitor when all account numbers and authorization has been received and store for employer  Obtain Workers’ Compensation policy in employer’s name (must be individual policy for employer) as applicable

8. Worker Enrollment2 If consumer will hire own workers, workers must be enrolled with the consumer and with the FMS  Consumer identifies worker  When consumer decides to hire worker, paperwork must be completed IRS Form W-4, Employee’s Withholding Allowance Certificate USCIS Form I-9 State Form W-4 Provide IRS Notice 797 for Earned Income Credit If worker requests, provide IRS Form W-5, Earned Income Credit Advance Payment Certificate Family Employee Information Sheet (for FICA/FUTA/SUTA exemptions) See handout. Terms and Conditions Agreement as applicable Any other forms required by program

9. Worker Enrollment Processing3 After worker has completed enrollment paperwork, FMS processes worker enrollment  Review all forms to ensure proper completion (especially Form I-9)  Record state and federal income tax withholding allowances in payment system  Record applicable family employee FICA/FUTA/SUTA exemptions (see handout)  Record Earned Income Credit as applicable  Report New Hire with State within state required timeline (usually within 20 days of hire)

10. Vendor Enrollment1 If consumer will use independent contractors for certain tasks* or will use a non-labor vendor (e.g. ramp installation, pharmacy, agency services) the entity must be enrolled as a vendor  * Remember, workers who provide personal care, home care, respite or other direct service to the consumer are almost NEVER classified as independent contractors. They are household employees. Paying them as independent contractors is bad news and dangerous for the FMS, consumer and the state. Complete IRS Form W-9 Complete any program-specific forms or agreements

11. Budget Management7 Obtain the initial budget from the Care Manager, Support Broker or other entity Verify that budget appropriately accounts for the cost of employer taxes/insurances (FICA, FUTA, SUTA, Workers’ Compensation) Ensure rates of pay are included in budget. Rates must be in the budget; not on the timesheet/invoice. Ensure rates of pay meet state minimum wage requirements Ensure budget accounts for overtime, if applicable

12. Budget Management Continued… Ensure all timesheets and vendor invoices are authorized by the budget and sufficient funds exist before paying them If changes must be made to the budget, coordinate changes, ensuring proper authorization is obtained before making changes If budget funds are not used, manage “savings” per program rules Understand that FMS may be held liable for over- expenditures or unauthorized payments

13. Issue Payments7 Receive completed timesheets and invoices per posted payment cycle dates Review timesheets and invoices and ensure they meet all program rules (e.g. signatures from worker and consumer) Ensure all employer and worker enrollment is 100% complete prior to making payments Ensure budget fully authorizes and funds cover timesheet/invoice Ensure pay is in accordance with state minimum wage and overtime rules Pay worker/vendor by posted pay date and per state pay date rules From employees, withhold taxes, calculate employer taxes, take deductions (liens, levies, garnishments, union dues), process Earned Income Credit

14. Manage Taxes and Insurance: Federal Taxes10 Operate as a Fiscal/Employer Agent  AAA obtains a separate Federal Employer Identification Number for purposes of representing consumer employers  Operate under Section 3504 of the Internal Revenue Code and Rev. Proc. 70-6 and Proposed Rules for Section 3504 Agent Employment Tax Liability (REG- 137036-08) Take on joint liability (with consumer employer) for Federal employment taxes Pay all Federal taxes in the aggregate using separate FEIN

15. Manage Taxes and Insurance: State Taxes 10 Pay and file all State Income and Unemployment Taxes “in the individual” on behalf of each consumer employer using consumer employer’s own State account numbers Pay and file any local taxes the same way

16. Manage Taxes and Insurance: Income Tax 10 Income Tax Withhold worker Federal and State income taxes based on worker withholding allowances and exemptions Federal Income Tax File worker Federal income tax in the aggregate using separate FEIN on IRS Form 941 (filed quarterly) and Form 941 Schedule R (more on this later) Deposit worker Federal income tax in the aggregate using Separate FEIN per required deposit frequency State Income Tax File worker State income tax individually on behalf of each consumer employer using consumer employer’s own State Income Tax account number (usually filed quarterly; depends on state rules) Deposit worker State income tax individually on behalf of each consumer employer using consumer employer’s own State Income Tax account number per required deposit frequency for consumer employer Earned Income Credit Make Advanced Earned Income Credit payments for qualifying workers and report such payments appropriately on the IRS Form 941 and 941-R

17. Manage Taxes and Insurance: FICA 10 FICA is Social Security and Medicare Taxes Half of the FICA due to the IRS/SSA is withheld from employee pay and the other half is paid by the employer When enrolling a worker, determine if they are exempt from employee and employer FICA because they are a certain kind of family employee (see handout) When paying worker, withhold employee FICA and calculate employer FICA based on gross wages Deposit FICA in the aggregate using separate FEIN per required deposit frequency File FICA quarterly in the aggregate using Form 941 and Form 941 Schedule R (more on this later) At year-end, refund FICA to any employees who earned less than the FICA threshold for the year. Also refund the employer portion of FICA to the payer of employer taxes (usually the funding source)

18. Manage Taxes and Insurance: Federal Unemployment Tax (FUTA)10 Manage “Family Employee” FUTA exemptions (see handout) Manage employer FUTA liability (employer isn’t liable until he/she pays $1000 in wages in single quarter) Manage FUTA excess wages for employees Calculate FUTA taxes on gross wage payments to workers Deposit FUTA in the aggregate using separate FEIN quarterly File FUTA in the aggregate using separate FEIN annually using Form 940

19. Manage Taxes and Insurance: State Unemployment Tax (SUTA)10 Manage “Family Employee” SUTA exemptions (see handout) Manage employer SUTA liability (employer isn’t liable until he/she pays $1000 in wages in single quarter) Manage SUTA excess wages for employees Calculate SUTA taxes on gross wage payments to workers Deposit SUTA “in the individual” using consumer employer’s own SUTA account number per state deposit requirements File SUTA “in the individual” using consumer employer’s own SUTA account number per state filing requirements Respond to unemployment claim requests for information

20. Manage Taxes and Insurance: Workers’ Compensation7 Workers’ Compensation (WC) responsibilities will depend on state rules for WC for household employers and the program’s rules for WC If WC is a requirement, policies must be procured individually for each consumer employer Ensure worker tasks fit with WC classification code Comply with WC annual audits, providing all required data (will vary depending on state, policy, broker)

21. Manage Taxes and Insurance: Year-End Reporting, W-2s6 Issue Forms W-2 to workers by January 31  A separate form W-2 goes to each worker for a consumer/worker relationship  Forms W-2 show the FMS’ separate FEIN in the Federal portion of show the consumer’s State Income Tax Account Number in state section File Forms W-2 (and W-3 if not filing electronically) with IRS/SSA by due date File Forms W-2 with State as applicable and by State due date

22. Manage Taxes and Insurance: Year-End Reporting, Forms 1099-Misc2 Issue Forms 1099-Misc to applicable independent contractors by January 31 File Forms 1099-Misc (and 1096 if not filing electronically) with IRS by due date File Forms 1099-Misc or State equivalent with State as applicable and by State due date

23. Reporting4 Fulfill information reporting requirements for program This will usually include:  Provide a statement, at least monthly, to consumer and family showing budget amount, spending, remaining amounts  Report expenditures and issues to care managers regularly  Myriad of other possible reports

24. Communication4 The level of communication responsibility held by the FMS will depend on the program structure and requirements, but the FMS provider is usually responsible for:  Communicating with consumers about enrolling as employers  Communicating with consumers, workers and vendors about payment  Communicating with consumers, families, care managers about issues with budgets, timesheets, invoices, payments

25. A Suggested Model for FMS In-House Use a Reporting Agent  A reporting agent is a payroll agent  Reporting agent is responsible for: Taking a file of data for timesheets and invoices that are “ok to pay” Paying workers/vendors Withholding taxes Paying taxes Filing taxes Managing year-end tax duties

26. A Suggested Model for FMS In-House FMS is responsible for:  Operating under Section 3504 of IRC (joint liability with consumer employer)  Enrolling consumers as employer  Enrolling workers and vendors  Collecting timesheets and invoices  Managing budgets  Reporting  Communication

27. Be Very Aware if Considering a Reporting Agent It is urgently recommended that you only use a Reporting Agent with specific experience working with consumer direction F/EA payroll  Many big payroll companies do not have the proper infrastructure or payroll systems to handle payroll for household employers using an employer agent (consumer direction F/EA payroll)  Ironing out roles and responsibilities when using a reporting agent is critical  Contact Mollie for reporting agent recommendations

28. Questions, Comments, Suggestions? Mollie (Grotpeter) Murphy 617-953-3914 mollie.grotpeter@annkissam.com