Internal Revenue Service Office of Federal, State and
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Transcript Internal Revenue Service Office of Federal, State and
Federal, State and Local
Government Specialist
Donna Richard
Internal Revenue Agent
512-499-5033
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Internal Revenue Service
State Agencies
County Governments
Federal Agencies
Municipal Governments
School Districts
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FSLG
FIELD OPERATIONS
FSLG Group (Area) Managers
– 8 Areas (Groups)
– 10 FSLG Specialists Per Group
FSLG Specialists
– About 80 FSLG Specialists Nationwide
– Each State has at least one Specialist
assigned to it
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OUTREACH AND AUDIT
Conferences
Compliance Checks
Examination
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HOT TOPICS
•Section 218 Agreements
•Required Federal Return Filings
•Fringe Benefits
•Worker Classification
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FSLG
HISTORICAL OVERVIEW
1951 Section 218 of the Social Security
Act Allowed State and Local
Governments to participate in Social
Security
1987 IRS Started Collecting FICA from
State and Local Governments
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REQUIRED FILINGS
Form 941
Form W-2
Form 1099
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Types of Payments/Services
Reported on the FORM
1099-MISC ( By Box)
Rents – Box 1
Other Income – Box 3
Backup Withholding (BWH)– Box 4
Medical/Health Care Payments – Box 6
Non-employee Compensation – Box 7
Gross Proceeds to Attorneys – Box 14
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Information Needed From
Payee
Secure Form W-9
– Upfront when services contracted
– Put in Vendor File
Provides correct name/TIN combination
Provides information to determine whether payee
is subject to backup withholding or not
Provides perjury statement with signature
Limits risk and liability for government entity
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Who Does NOT Get 1099-MISC?
Employees
Corporations
Except: Attorneys or
Medical or Health Care Service Providers
Businesses that provide you with:
– Merchandise Inventory
– Equipment, supplies, parts only*
*Parts provided with services are reportable
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Who Does NOT Get Form
1099-MISC?
Contd….
Exempt Organizations IRC §501(c)(3)
Governmental Entities
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Failure to Secure a Vendor’s Social Security
Number or Taxpayer Identification Number
May Subject Your Agency to
BACKUP WITHHOLDING.” (IRC 3406)
28%
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CP 2100 FROM IRS:
Notice tells Payer their responsibility for
backup withholding and could be subject
to civil penalties on the listed payees
Notice provides details of payees with:
– Missing TINs, and/or
– Incorrect Name/TINs, and/or
– Not currently-issued payee TINs
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Never assume an entity is
incorporated!
LC – Limited Company
LLC – Limited Liability Company
LP – Limited Partnership
LLP – Limited Liability Partnership
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FEDERAL STATE AND
LOCAL GOVERNMENTS
FRINGE BENEFITS
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WHAT IS A FRINGE
BENEFITS?
ANY PROPERTY, SERVICE OR
CASH (Other than Salary, Provided
by Employer)
TAXABLE UNLESS EXCLUDED
SPECIFICALLY BY LAW
– Example: Medical Premiums IRC
106
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TAXABLE FRINGE BENEFITS:
INCLUDE in Employee’s wages
and on W-2 (Never on 1099MISC)
Subject to Federal Withholding,
Social Security and Medicare
Even if benefit is received by/for
spouse or child of employee
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NON-TRAVEL FRINGE
BENEFITS:
Clothing/uniforms
Cell phones
Awards
Bonuses
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AWARDS ARE TAXABLE
CASH PRIZES OR
AWARDS are always
taxable
PERFORMANCE AWARDS
are always taxable
NON-CASH:
– Use Fair Market Value
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AWARDS EXCEPTIONS:
Certain Awards transferred to Charities
– Pulitzer, Nobel Peace Prize
Certain Employee Achievement
Awards
– Length of Service, Safety - Not Cash
Nominal Holiday/Special Occasion
Awards
– Coffee mugs, plagues, etc.
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TRAVEL-RELATED FRINGE
BENEFITS:
Per Diem Allowances
– for lodging, meals and/or incidentals
– for business related travel
– while away from home
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MEAL ALLOWANCES WHILE
TRAVELING ON BUSINESS:
MEALS AWAY FROM HOME:
– OVERNIGHT
Accountable Plan - Not taxable
– NOT OVERNIGHT
Taxable as wages
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MEAL ALLOWANCES WHEN
NOT TRAVELING:
Meals with business meetings – NOT taxable if:
clear business setting
directly related
Employer buys you lunch – Taxable as wages
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EMPLOYER-PROVIDED
VEHICLE:
HOW DOES EMPLOYEE
ACCOUNT FOR PERSONAL
USE?
Personal Use is taxable
Verified Business Use is not taxable
Employee can reimburse Employer
for personal use
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VALUING PERSONAL USE THREE RULES:
Automobile Lease Valuation
Rule*
Cents-Per-Mile Rule
Commuting Rule
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Non-Taxable Fringe Benefits:
No additional cost service
Qualified employee discounts
Working condition fringe
De minimis fringe
Qualified transportation
expenses
Qualified Moving Expense
Reimbursements
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REMEMBER:
If the benefit is taxable:
– Determine the Value of the benefit
– Include it in Wages and W-2
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Independent Contractor
vs.
Employee
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How do you make this
determination?
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Employee or Independent
Contractor?
Determine the Worker’s Status
Who has the right to control the worker?
– 3 Categories of Evidence
Behavioral Control
Financial Control
Relationship of the Parties
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Right to direct and control
The right to direct and control
the means and details of the work
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BEHAVIORAL
RELATIONSHP:
IF the firm provides instructions:
– on how to do the job,
– what hours to work, what days, etc. ,
– the worker is most likely an employee.
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FINANCIAL CONTROL:
If the firm provides an office,
– all office supplies, computer
– and other business equipment to the
worker,
– the worker is an employee.
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RELATIONSHIP OF THE
PARTIES:
If the firm provides benefits:
– health insurance, life insurance,
– retirement benefits, 40l(k) plan, 403(b)
– the worker is an employee.
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INDEPENDENT
CONTRACTOR
Offers services to public
Operates own business
Bills for services
Doesn’t have to personally perform
work
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COMMON
MISCONCEPTIONS:
EMPLOYEES CAN BE:
Part-time workers
Temporary workers
Probationary period
Workers who say they are
Independent Contractors
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State Laws
Worker may be an employee for
Federal Law purposes and
an independent contractor for State
purposes,or vice versa.
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Dual Status Worker – 1 Entity
Employee
–
–
–
–
Independent
Contractor
– Janitorial Services
– Compensation on
Form 1099-MISC
Accountant
Wages on Form W-2
Withhold FITW
Withhold FICA
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Elected And Appointed
Officials
Examples of Elected and Appointed Officials
–
–
–
–
–
–
–
Mayor
City Attorney
Judge or Justice of the Peace
Building Inspector
Board Members
Road Commissioner
Animal Control Officer
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Elected And Appointed
Officials
Employee
–
–
–
–
–
Position established by law
Duties defined by statute
Performs duties as a public official
Responsible to the public
Paid out of governmental funds
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LOOK AT THE FACTS
No single fact provides the answer
Weigh all of the evidence
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Sources Of Information
Publication 15, “Circular E, Employer’s Tax
Guide”
Publication 15-A, “Employer’s Supplemental Tax
Guide”
Publication 15-B, “Employer’s Tax Guide to Fringe
Benefits”
Publication 963, “Federal-State Reference Guide “,
Catalog #21843B
Taxable Fringe Benefit Guide (IRS.GOV)
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IRS CONTACTS:
IRS INFORMATION
1-800-829-1040
CUSTOMER ACCOUNT
SERVICES
877-829-5500
1-
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QUESTIONS
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