Employment Tax Laws
LAUSD Small Business Boot Camp
Version 08.a
Presenters
IRS
IRS Partner
IRS Leveraged Presenter
EDD
Jimmy Wong
Taxpayer Education and Assistance
Taxpayer Assistance Center:
1-888-745-3886
Agenda
• Employee vs. Independent
Contractor
• Reporting Requirements for
Independent Contractors
• Employer Responsibilities
• Reporting and Deposit
Requirements
Employee vs.
Independent Contractor
Employee vs. Independent Contractor
Employee:
An individual who performs services for you
and is subject to your control regarding
what will be done AND how it will be done.
Independent Contractor:
An individual who performs services for you,
but for whom you control only the result of
the work.
Types of Workers
• Employees
– Common law
– Statutory
• Corporate officer
• Unlicensed construction contractor (state)
• Independent contractors
Common Law Employment
• Common law evolved slowly over the
years based on court decisions on
individual cases.
• Common law rules of employment are the
total of all court decisions on employment.
Common Law Employment (continued)
Person who hires an individual to perform
services has the right to control the manner
and means of performing those services,
whether exercised or not.
The right to discharge a worker at will
and without cause is strong evidence
of right to control.
What Can Happen If I Misclassify My Workers?
• Costly audits by the IRS, the EDD, and the
Dept. of Industrial Relations due to:
– Worker claims for injury/unemployment.
– Worker informants.
– Competitor informants.
• Additional taxes, penalties, and interest.
• Revocation of state/local licenses.
Worker Classification Factors
• Behavioral control
• Financial control
• Relationship between parties
• Case-by-case basis
Voluntary Classification Settlement Program
•
•
•
•
•
Optional program to reclassify workers
Applies to future tax periods
Must meet eligibility requirements
Apply by filing Form 8952
Must enter into a closing agreement
Resources
• Business and Specialty Tax Hotline
800-829-4933
• Visit IRS.gov
– Click on “Businesses” tab, “Employment
Taxes” in the left navigation
– Search Keyword “worker classification”
• Worker classification resource handout
Resources (continued)
• Pub 1779, Independent Contractor or
Employee
• Pub 15 (Circular E), Employer’s Tax Guide
• Pub 15-A, Employer’s Supplemental
Tax Guide
• Form SS – 8, Determination of Worker
Status
Resources (continued)
• DE 44, California Employer’s Guide
• DE 231, Information Sheet - Employment
• DE 38, Employment Determination Guide
• DE 1870, Determination of Employment
Work Status
Resources (continued)
• Employment Status Course
www.edd.ca.gov/Payroll_Taxes/Web_Based_Seminars.htm
• Employee or Independent Contractor Tax
Seminar
www.edd.ca.gov/Payroll_Tax_Seminars/
• EDD Payroll Tax Forms and Publications
www.edd.ca.gov/Payroll_Taxes/Forms_and_Publications.htm
Reporting Requirements
for
Independent Contractors
Form W-9, Request for Taxpayer
Identification and Certification
• Reports:
– Payee’s correct name
– Payee’s Taxpayer Identification number
Backup Withholding Requirements
• Withhold 28 percent of income if:
– Payee does not provide TIN
– Payee provides incorrect TIN
– IRS notifies payer of incorrect TIN
• Withholding time frames
– begin with first payment over $600
– until payee provides correct TIN
TIN Matching Program
• Benefits:
– Match payee name with Form W-9
– Match TIN with IRS records
– Decrease backup withholding and
penalty notices
– Reduce the error rate in TIN validation
• e-services verification available
California Backup Withholding Requirements
• If required to remit federal backup withholding to
IRS, withhold 7 percent of income.
• Remit to Franchise Tax Board:
www.ftb.ca.gov/individuals/WSC/Backup_Withholding.shtml
Reporting Independent Contractors to EDD
DE 542, Report of Independent
Contractor(s)
– $600 or more for services in a
calendar year.
– Applies to services provided by sole
proprietor.
Form 1099-MISC Filing Requirement
• Report payments of $600 or more paid in the course
of your trade or business to non-employees annually.
• Report payments of at least $10 in royalties or broker
payments in lieu of dividends or tax-exempt interest.
• Provide required copies timely to:
– Payees by January 31
– IRS by last day of February
• Exception awareness
Potential Penalties
• Failure to file correct information returns
by due date
• Trust fund
– imposed when taxes withheld are not
sent to IRS
– 100% of taxes, for taxes not sent to IRS
– potential backup withholding for payer
Federal Forms and Due Dates
• Form 945 to IRS, due January 31
• Form 1099-MISC to:
– Independent contractor, due January 31
– IRS, due last day of February
• Form 1096 (with Forms 1099) to IRS, due
last day of February
NOTE: Obtain Form W-9 from independent
contractor prior to first payment.
State Forms and Due Dates
Form
DE 542
Issue to
EDD
Due
The earlier of 20 days from
entering into contract, or
making payment
Employer
Responsibilities
Employer’s Federal Requirements
• Obtain Federal Employer Identification
Number with Form SS-4
• Complete federal forms
– W-4, Employee’s Withholding
Allowance Certificate
– Form I-9, Employment Eligibility
Verification
• Notify IRS of address change
Employer’s State Requirements
• Obtain a Workers’ Compensation
Insurance policy.
www.dir.ca.gov/dwc www.statefundca.com
• Apply for state employer account
number.
DE 1, Registration Form for
Commercial Employers
When Hiring New Employees
• Obtain DE 4, Employee’s Withholding
Allowance Certificate, if status/allowances
claimed differ from Form W-4.
• Submit DE 34, Report of New
Employee(s).
Employee Notification Requirements
• DE 35, Notice to Employees
• DE 2511, Paid Family Leave
• DE 2515, State Disability Insurance
• DE 2320, For Your Benefit
• Written separation notice to employees.
Posting Requirements
Generally, federal and state laws require that
employers post complete, up-to-date versions
of labor notices and other required posters.
Current posting requirements are available at:
www.taxes.ca.gov/Payroll_Tax/postingreqbus.shtml
Recordkeeping
• Maintain wage, earning, deduction, and
withholding records on employees.
• Provide earning statements to each
employee, each payday.
• Retain employee records and returns for
at least four years.
Reporting and
Depositing Requirements
2013 Federal Payroll Taxes
Employer pays:
• FUTA: 0.6% for the first $7,000 paid to each
employee as wages during the year
• FICA Social Security: 6.2% on first
$113,700 (wage base limit)
• FICA Medicare: 1.45% on all wages
2013 Federal Payroll Taxes (continued)
Employee pays:
• FICA Social Security: 6.2% on first $113,700
(wage base limit)
• FICA Medicare: 1.45% on all wages
• Federal Income Tax: Refer to Pub 15
2013 State Payroll Taxes
STATE
UI
Unemployment
Insurance
ETT
Employment
Training Tax
Employer pays
3.4%
0.1%
Employee pays
Wage Limit
$7,000
$7,000
PIT
SDI
State Disability Personal Income Tax
Insurance
(State Income Tax)
1.0%
DE 44
$100,880
None
Electronic Federal Tax Payment System
• Methods
– Visit www.eftps.gov
– Call toll-free 800-555-4477
• Free
• Available 24/7
• Taxpayers guided through process
• Third party deposit verification
State Electronic Filing and Payment Methods
e-Services for Business
• Fast, easy, and secure ways to
manage your payroll taxes online.
• View and edit your returns/reports
prior to submission.
• Available 24 hours a day, 7 days a
week.
State Payroll Tax Deposit Methods
• DE 88, Payroll Tax Deposit
• Electronic Funds Transfer
• Credit Card (Telephone or Internet)
State Payroll Tax Reporting Forms
DE 88, Payroll Tax Deposit
DE 9, Quarterly Contribution
Return and Report of Wages
DE 9C, Quarterly Contribution
Return and Report of Wages
(Continuation)
Forms and Due Dates
State
Period
DE 9
DE 9C
1st Quarter
DE 9
DE 9C
2nd Quarter
DE 9
DE 9C
3rd Quarter
DE 9
DE 9C
4th Quarter
Jan., Feb., March
Apr., May, June
July, Aug., Sep.
Oct., Nov., Dec.
Due by
April 30
July 31
October 31
January 31
Federal Payroll Tax Reporting Forms
• Form 941, Employer’s Quarterly Federal Tax
Return
• Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return
– Schedule A, Multi-State Employer
and Credit Reduction Information Return
• Form 944, Employer’s Annual Federal Tax
Return
Federal Payroll Tax Reporting Forms
(continued)
• Form W-2, Wage and Tax Statement
• Form W-3, Transmittal of Wage and Tax
Statements
Form 941, Quarterly Federal Tax Return
• First Quarter (Jan. - March) due April 30
• Second Quarter (April - June) due July 31
• Third Quarter (July - Sept.) due Oct. 31
• Fourth Quarter (Oct. - Dec.) due Jan. 31
Penalty and Interest Prevention
• Classify workers properly.
• File all documents and returns timely.
• Make all payments timely and in full.
• Use electronic filing and payment methods
to reduce errors.
• Respond timely to all correspondence.
California Tax Service Center
Thank You!
Questions?