Transcript ADA OF GREATER PHILADELPHIA

PAA LEHIGH VALLEY
CFO FORUM
Year-End Payroll Processing
Wednesday, November 12, 2008
1099 VS. W-2 TREATMENT
• What to File
 W-2 issued when employer/employee relationship exists
 1099 issued to independent contractors paid over $600
during calendar year
1099 VS. W-2 TREATMENT
• IRS has issued guidance to determine whether
an employment relationship exists.
 Factors to be considered:
 Instructions
 Training
 Integration
 Services rendered personally
 Hiring, supervising and paying assistants
1099 VS. W-2 TREATMENT
 Factors to be considered: (continued)
 Continuing relationship
 Set hours of work
 Full-time required
 Work performed at employer’s place
of business
 Order or sequence set
1099 VS. W-2 TREATMENT
 Factors to be considered: (continued)
 Oral or written reports
 Payment by hour, week, month
 Payment of business and/or traveling
expenses
 Furnishing of tools or materials
 Significant investment
1099 VS. W-2 TREATMENT
 Factors to be considered: (continued)
 Realization of profit or loss
 Working for more than one firm at a time
 Making service available to general public
 Right to discharge
 Right to terminate
 Other factors
1099 VS. W-2 TREATMENT
• IRS Reclassification
 Frequently asked questions when IRS
reclassifies workers as employees
 What should I do now?
 How do I figure my liability for FICA tax
and federal withholding?
 Do I qualify for any type of reduced tax
rates, and if so, what are these rates?
1099 VS. W-2 TREATMENT
 Frequently asked questions when IRS reclassifies workers
as employees (continued)
 What are the reduced rates under
Section 3509?
 What do I do about Form 941?
 What do I do about Forms W-2
DEMONSTRATORS
Rev. Proc. 2001-56
• What is the purpose of the Revenue
Procedure?
– Provides optional simplified methods for
determining the value of the use of
Demonstration Vehicles.
• What is the effective date?
– January 1, 2002
DEMONSTRATORS
Rev. Proc. 2001-56
• The Methods Include:
– Simplified Method for the Full Exclusion of
Qualified Automobile Demonstration Use
– Simplified Partial Exclusion Method
– Simplified Inclusion Method
DEMONSTRATORS
Rev. Proc. 2001-56
• Who may use the Simplified Methods?
– Available to any Automobile Dealer engaged
in the business of Retail Sales of New or
Used Vehicles
• What Vehicles Qualify as Demos?
– Vehicles currently in inventory and available
for test drives by customers during the
normal business hours.
DEMONSTRATORS
Rev. Proc. 2001-56
• Which employees qualify for the simplified
Methods?
– Limited to use by Full-Time Salespeople.
• Does new Rev. Proc. Describe all methods
available?
– No - a dealer may use any other method
that complies with the Internal Revenue
Code
DEMONSTRATORS
Rev. Proc. 2001-56
• Simplified Full Exclusion
– Use of vehicle in Sales Area
– Employer must have a qualified written
policy
•
•
•
•
Substantial restrictions on personal use
Use limited to salesperson (ie spouse not allowed)
Use of personal vacation trips prohibited
Storage of personal possessions is prohibited
– Employer must reasonably believe that
sales person is complying with written
policy
DEMONSTRATORS
Rev. Proc. 2001-56
• Simplified Full Exclusion Method (cont.)
– Use outside normal working hours is limited
to commuting plus an average of 10 miles
per day on a monthly basis.
– Mileage records must be maintained such as
recording the mileage at the time of arrival
and departure at the sales office each day.
Some verification is necessary
DEMONSTRATORS
Rev. Proc. 2001-56
• Simplified Partial Inclusion Method
– Written Policy required
– Prohibited use includes personal vacations,
storage of personal possessions and use by
anyone other than the full-time salesperson
– Unlimited miles
– No record keeping requirement
DEMONSTRATORS
Rev. Proc. 2001-56
• Simplified Partial Inclusion Meth. (cont.)
– Salesperson taxed on $6 per day for
vehicles valued at $15,000 - $30,000
(determined on the dealership average
sales price basis).
– Can be used for any month a full-time
salesperson does not qualify for the
simplified exclusion method
DEMONSTRATORS
Rev. Proc. 2001-56
• Simplified Inclusion Method
– Can be used for any month a full-time
salesperson does not qualify for the
simplified full or partial exclusion methods.
– Simplified method of determining value of
demo used by employee (dealership
average sales price basis).
– Must be used on a monthly basis.
DEMONSTRATORS
Rev. Proc. 2001-56
• Summary of Methods available for full-time
salespersons
– Full exclusion
• Keep records, limit personal use to
commuting plus 10 miles per day and
other restrictions apply. Taxable amountzero
DEMONSTRATORS
Rev. Proc. 2001-56
• Summary of Methods available for full-time
salespersons (Continued)
– Partial exclusion
• No records, no mileage limit to personal
use, some other restrictions. Taxable
amount - about $6 per day.
DEMONSTRATORS
Rev. Proc. 2001-56
• Summary of Methods available for full-time
salespersons (Continued)
– Inclusion Method
• Available if does not qualify for Full or
Partial Inclusion Method. Taxable amount
- simplified method of determining value
of demo used by employee
DEMONSTRATORS
Rev. Proc. 2001-56
• Summary of Methods available for full-time
salespersons (Continued)
– Commuting and de minimis
• No record keeping if the employer
reasonably believed that there was no
personal use except for de minimis and
no amount would be includible in income
for the value of commuting (may have to
maintain some evidence of this). Taxable
amount-Zero
DEMONSTRATORS
Rev. Proc. 2001-56
• Method available for all dealership employees:
– Full inclusion at annual lease value amount
based on average dealership vehicle sales
price, no record keeping. Taxable amount$17 per day average.
GROUP TERM-LIFE INSURANCE (GTL)
• Premiums for coverage over $50,000
• Amount of such “excess” premiums must be
reported through payroll
• Non-taxable jurisdictions
 Federal unemployment
 PA income tax
 PA unemployment tax
 NJ unemployment tax
THIRD PARTY SICK PAY
• What is reportable?
 Taxable AND
 Non-taxable sick pay made to employees
from a third party
• W-2 Requirements
 Sick pay MUST be included on the
employees’ W-2 or on a separate form
provided by the third party
THIRD PARTY SICK PAY
• Non-taxable jurisdiction determination
 First six months
 New Jersey income tax
 New Jersey unemployment tax
 Delaware unemployment tax
 After six months





PA unemployment tax
New Jersey unemployment tax
Delaware unemployment tax
Social Security and Medicare
Federal Unemployment
S-CORP MEDICAL INSURANCE
• Shareholders of an S-Corp may not participate
in Section 125 plans (cafeteria plans)
• Medical insurance premiums paid by the
employer on behalf of 2% shareholder are
taxable to the shareholder
S-CORP MEDICAL INSURANCE
• Non-taxable jurisdictions
 Social security tax
 Medicare tax
 Federal unemployment tax
 PA income tax
 PA unemployment tax
S-CORP MEDICAL INSURANCE
• Non-taxable jurisdictions (continued)
 Philadelphia wage tax
 New Jersey income tax
 New Jersey unemployment tax
 Delaware unemployment tax
CAFETERIA PLANS
• Plan under which certain qualified benefits,
paid for by the employees are not taxable
under certain jurisdictions
• Non-taxable jurisdictions
 Federal
 Social security tax
 Medicare tax
CAFETERIA PLANS
• Non-taxable jurisdictions (continued)
 Federal unemployment tax
 PA income tax
 Delaware income tax
• Must have a formal plan in place
CAFETERIA PLANS
• Employees must agree to pay for their
benefits under the plan
• Form 5500 must be filed annually for the plan
(due seven months after the end of the plan
year)
401(k) PLAN
• Maximum amounts that an employee can
defer per federal regulations
 $15,500
• Refer to plan documents for restrictions
• Non-taxable jurisdictions
 Federal income tax
 New Jersey income tax
 Delaware income tax
401(k) PLAN
• Employees must authorize salary deferrals
• Form 5500 must be filed annually for the plan
(due seven months after the end of the plan
year)
SERVICE TECHNICIAN TOOL
REIMBURSEMENTS
• Issue
 Are amounts paid to technicians as
reimbursements for the use of the
technicians’ tools paid under an accountable
plan?
SERVICE TECHNICIAN TOOL
REIMBURSEMENTS
• IRS conclusion
 Effective date - July 21, 2000
 Generally, amounts paid to technicians as
tool reimbursements will not meet the
accountable plan requirements. Therefore,
amounts paid under a non-accountable plan
are included in the employee’s gross
income, must be reported to the employee
on Form W-2 and are subject to the
withholding and payment of federal
employment taxes.
SERVICE TECHNICIAN TOOL
REIMBURSEMENTS
• Corrective procedures
 Do not exclude for 2001
1099 REPORTING REQUIREMENTS
• Due date to workers/independent contractors
• Due date to federal government
• Penalty for failure to file
 $50 per return (non-filing or filed after
August 1)
 Maximum penalty $250,000 per year
1099 REPORTING REQUIREMENTS
• Penalties also apply if:
 File on paper when you should have filed on magnetic
media ( 250 forms)
 You report on incorrect taxpayer ID
 You fail to report a taxpayer ID
 You fail to use forms that are machine readable
1099 REPORTING REQUIREMENTS
• Use your computer system to accumulate data
• Use your computer system to print returns
• ADP
 Set up all unincorporated vendors to have
computer accumulate and print 1099’s
 Use ADV function to properly set up vendors
1099 REPORTING REQUIREMENTS
• ADP (continued)
 Make sure that all “on demand” checks are
coded as “Type 2” - vendor for proper
accumulation
 Run 1099 report
 Check amounts to vendor files
 Correct any errors
 Re-run 1099 report
 Print 1099’s
1099 REPORTING REQUIREMENTS
• Reynolds & Reynolds
 Utilize Function O551 to set-up
unincorporated vendors and change vendors
to collect data for 1099 purposes
 Utilize Function 0794 to run the 1099
balance report and check amounts to vendor
files
 Utilize Function 0792 to adjust 1099
balances and correct any errors
1099 REPORTING REQUIREMENTS
• Reynolds & Reynolds (continued)
 Utilize Function 0794 to re-run 1099 balance
report
 Utilize Function 0414 to print 1099 forms
DEALER’S SAFEHARBOR BONUS
• Getting this amount?
 This should be calculated by the
shareholder’s CPA
• Why are we paying the federal withholding at
year end?
 Withholding is pro-rated as if paid evenly
throughout the year
 Think time value of money
DEALER’S SAFEHARBOR BONUS
• Example - $1,000,000 due in the year
 If estimates paid, payments paid on . . .
April 15
June 15
September 15
January 15
$
250,000
250,000
250,000
250,000
$1,000,000
DEALER’S SAFEHARBOR BONUS
• Example - $1,000,000 due in the year
(continued)
 If paid $1,000,000 through withholding at
December 30th
 Interest at 8.5% on money kept until
December 30th . . . $17,000
DEALER’S SAFEHARBOR BONUS
 Remember . . . .
 Federal tax liabilities in excess of
$100,000 must be deposited by the NEXT
banking day after the check date.
FEDERAL PAYROLL TAX DEPOSIT RULES
• Determination status
 Based on annual determination
• Types of status
• Monthly
 If aggregate amount reported for lookback
period is $50,000 or less
FEDERAL PAYROLL TAX DEPOSIT RULES
• Semi-weekly
 If aggregate amount reported for lookback
period is $50,000 or more
• Lookback period
 Lookback period for each calendar year is
twelve month period ended the preceding
June 30th.
FEDERAL PAYROLL TAX DEPOSIT RULES
• Deposit dates
 Monthly rule
 Must deposit employment taxes on or
before the 15th day of the following
month
FEDERAL PAYROLL TAX DEPOSIT RULES
• Deposit dates (continued)
Semi-weekly rule
Payment Dates
Deposit Date
Wednesday, Thursday
and/or Friday
On or before the following
Wednesday
Saturday, Sunday, Monday
and/or Tuesday
On or before the following
Friday
FEDERAL PAYROLL TAX DEPOSIT RULES
• Deposit dates (continued)
 One day rule
 If on any day within a deposit period an
employer has accumulated $100,000 or
more of employment taxes, those taxes
must be deposited by the close of the next
banking day.
FEDERAL PAYROLL TAX DEPOSIT RULES
• Tax deposits by electronic funds transfer
 Aggregate annual taxes exceed $200,000
FEDERAL PAYROLL TAX DEPOSIT RULES
• Penalties and interest
2%
5%
10%
10%
Deposits made 1 to 5 days late
Deposits made 6 to 15 days late
Deposits made 16 or more days late
Amounts paid within 10 days of first notice
the IRS sent asking for the tax due
15% Amounts unpaid more than 10 days after the
date of the first notice the IRS sent asking for
the tax due
FEDERAL PAYROLL TAX DEPOSIT RULES
• Penalties and interest (continued)
10%
10%
Deposits made at an unauthorized financial
institution, paid directly to the IRS, or paid with
your return
Amounts subject to electronic deposit
requirements but not deposited using the
Electronic Federal Tax Payment System
(EFTPS)
THE ENTITIES ARE CHANGING
• LLP
• LP
 Forms of partnerships
• LLC
 Members are treated like partners in
partnerships
TAX TREATMENT OF PARTNERS
• Payments to partners do not go on form W-2
• Payments to partners do not get reported on
quarterly payroll tax returns
• All taxes are paid by the individual through
their personal tax return
TAX TREATMENT OF PARTNERS
• What do you do?
• Follow the partnership agreement
• Payments will take on different characteristics
• Guaranteed payments
• Draws
TAX TREATMENT OF PARTNERS
• What do you do?
• Personal use of company auto
• Medical insurance premiums
• 401K contributions
THE END
“The material contained in this
presentation is for general
information and should not be
acted upon without prior
professional consultation.”