Internal Revenue Service
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Federal State & Local Government
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Lori Stieber, Internal Revenue Agent
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Bloomington, MN
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(320)351-7658
Lori.a.stieber@irs.gov
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Prevent an IRS Audit
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Compensation Recognition
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Who is an Employee?
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Recognize & Report
Control vs Independence
Alerts
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Mail from the IRS
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CP2100, 972CG, 98C
Lori.a.stieber@irs.gov
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Recognizing Compensation
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Wages (Publication 15)
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Vacation/Sick/Retirement
Severance/Death/Settlements (usually)
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Publication 15-A
Fringe Benefits (Publication 15-B)
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Health Insurance/Retirement
Allowances/Clothing/Vehicle/Travel/Clubs
Lori.a.stieber@irs.gov
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Recognizing Compensation
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Resources
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Publication 15, Pub. 15-A
Lori.a.stieber@irs.gov
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Recognizing Compensation
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Reconcile Compensation
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Gross Payroll/941/Box 1 W-2/SSW/MedW
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Gross deducts for Box 1 W-2 & Line 2 941
Box 1 comp add back PERA for SSW
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Adjust for SS max earnings & SS exempt earnings
Add back non-exempt for MedWage
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Publication 15/CAWR Inquiries 98C
Lori.a.stieber@irs.gov
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What are Fringe Benefits?
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The value of a benefit included in
earnings
Taxed as earnings
Some are exempt for all employment
taxes
Some are exempt from FIT only
Lori.a.stieber@irs.gov
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Fringe Benefit Examples
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Health Insurance
Retirement Benefits
Vehicle Allowances & Vehicle Use
Clothing
Training & Education
Clubs & Memberships with Associations
Lori.a.stieber@irs.gov
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Employee or Contractor?
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Who are employees?
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W-4 or a W-9 for service providers
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Who is in Control
Both must be signed by service provider
Most C-corporations exempt but not all
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LLC is a Company not necessarily a Corp.
Lori.a.stieber@irs.gov
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Types of Employees
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Common law or specific tax statute
Status may differ for FICA and for
Federal income tax withholding
Lori.a.stieber@irs.gov
9
Employment Under the
Internal Revenue Code
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IRC Sec. 3121(d)(2) Common law test
IRC Section 3121(d)(3) Other employees by
statute
Lori.a.stieber@irs.gov
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Common-Law Employee
Reg. Sec. 31.3121(d)-1(c)
Generally the 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.
Lori.a.stieber@irs.gov
11
Control Test
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Worker subject to control as to:
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What is to be done
How it is to be done
Employer may allow broad freedom, but
retains right to control
Lori.a.stieber@irs.gov
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Tests Under Common Law
The IRS recognizes three categories of
facts to consider when making a
determination of employee status:
• Behavioral control
• Financial control
• Relationship of the parties
Lori.a.stieber@irs.gov
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Behavioral Control
Indicate whether entity has a right to direct and control
how work is performed
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Instructions provided
Training provided
Government identification (i.e., badge)
Nature of occupation
Evaluation systems
Lori.a.stieber@irs.gov
14
Financial Control
Indicate whether entity controls business and financial
aspects of worker activities
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Significant investment in equipment, tools, or
facilities
Unreimbursed expenses
Offers service to general public
Method of payment (by job vs. by hour, etc.)
Opportunity for profit or loss
Part-time vs. full-time status
Worker has corporate status
Lori.a.stieber@irs.gov
15
Relationship of the Parties
Determine how the parties view the relationship
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Can refuse payment for nonperformance
Provide fringe benefits
Discharge/termination rights
Permanency
Regular business activity
Work is integral to business
Lori.a.stieber@irs.gov
16
Employees
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Wear I.D./Uniform
Work as requested or scheduled by payor
Trained by the payor
Use supplies & equipment & staff provided by
payor
Inclined to quit without obligation
Know & observe internal procedures
Lori.a.stieber@irs.gov
17
Independent Contractors
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Make own schedule
Provides their own staff
Has business phone/fax/email presence
Furnishes supplies & equipment
Have business liability insurance
Seeks a profit and risks loss
Lori.a.stieber@irs.gov
18
Form SS-8
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Not sure whether a worker is an
employee or independent contractor?
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Complete Form SS-8 for IRS determination
Information requested from worker and
payer
Lori.a.stieber@irs.gov
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If Payment Made To An
Employee
Secure W-4 before paying employees
„ File Form W-2 and W-3
„ Form 941 for Employment Tax
Withholding
Lori.a.stieber@irs.gov
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If Payment Made To An
Independent Contractor
Secure W-9 before payments to any
Vendor
„ File Form 1099-MISC and 1096
„ Form 945 for Backup Withholding of
Tax
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972CG or CP2100 or both
Lori.a.stieber@irs.gov
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Basic Recordkeeping Required
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Employment Tax
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941/944
W-2/W-3/W-4/W-5
Records of Fringe Benefits
Employee profiles
Basis for wages, of all kinds
Receipts, contracts, agreements, checks
Lori.a.stieber@irs.gov
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Basic Recordkeeping Required
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Vender or non-employee payments
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Vendor profile & tax i.d.
Dates, amounts and purpose of payments
Form W-9 or equivalent
Copies of information returns
Form 945 and related records
Lori.a.stieber@irs.gov
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Top Audit Issues
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Top Ten
Lori.a.stieber@irs.gov
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HELP!!
“Where to Find It” handout.
Lori.a.stieber@irs.gov
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Questions?
Lori.a.stieber@irs.gov
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