Employee Classification Under Scrutiny

by Steven Sodini 21. July 2015 14:02
The misclassification of employees as independent contractors is impacting a progressively larger number of companies and governmental entities in the U.S., and this trend is enhanced by an increase in restructuring activity by U.S. businesses. [More]
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Hiring in PA? Great! (but avoid this common compliance issue)

by Kevin McGarry 29. June 2012 09:23
  In 1997, the Commonwealth of Pennsylvania enacted Act 58, requiring all employers to report information on the employees they hired.  This legislation was created to assist The Commonwealth to locate parents who were not making their child support payments.  This system also assisted The Commonwealth to detect unemployment and workers compensation fraud overpayments.  Most employers have not continued to follow this mandate, as the quarterly unemployment tax reporting appeared to be addressing this issue.  However, The Commonwealth is actively notifying employers that this new hire reporting requirement is still required by law. Our advice to employers: when a new employee is hired, comply with this law.  A new hire form can be obtained through the Commonwealth Workforce Development System website. This is a standard form that employers need to complete and submit on behalf of a new employee, and include a copy in personnel files as you do with the W-4, I-9 and Local Certificate of Residency. You can manually prepare these forms and fax to 866-748-4473 or mail to: Commonwealth of PA, New Hire Reporting Program, P.O. Box 69400, Harrisburg, PA  17106-9400. You can also submit them via web-upload upon registering with PA CareerLink.  If you have any questions or you would like to discuss this, please give Urish Popeck a call.  
Categories: Advisory

Updated Fee Disclosures - ERISA 408(b)(2)

by Kevin McGarry 21. June 2012 11:35
Effective July 1, 2012, there will be new ERISA 408(b)(2) disclosure rules. The regulation is intended to help plan sponsors/fiduciaries understand the administrative and investment costs being paid from their plan’s assets. Individual plan holders should have received information directly from their plan service providers (TPA’s, record keepers, etc.) that addresses this new regulation. The full article “Final Fee Disclosure Regulation Issued” can be viewed on Urish Popeck’s website.   Additionally, the newly-required annual disclosure of plan-level and investment-level fees and expenses must be provided to participants no later than Aug. 30, 2012. Please visit the Department of Labor page, which summarizes the regulation, and feel free to reach out to Urish Popeck with any questions you may have.
Categories: Advisory

Hiring May Slow During Second Quarter of 2012

by Michael Popeck 13. June 2012 15:00
  In a recent survey conducted by the AICPA, business executives responded with more guarded views this quarter versus last quarter about the 12-month outlook for the U.S. economy.  However, most executives viewed their own companies with a better outlook than the U.S. economy as a whole. The CPA Outlook Index, which is a comprehensive gauge of executive sentiment within the survey, decreased 2 points after 2 consecutive quarters of growth.   The survey also included findings on hiring, industry views, business expansion, and challenges over the past three quarters.  Visit the AICPA’s Survey summary for the article and to read more about the findings in the survey.  
Categories: Advisory

IRS Provides Additional Written Guidance to Assist With Employee vs. Independent Contractor Determination

by Steven Sodini 7. June 2012 10:03
In October, 2011, the IRS published late Summertime Tax Tip 2010-20, in April, 2012, the IRS issued IRS Publication 1779, and in May, 2012, the IRS published an additional article called “independent contractor or employee?”, all of which attempt to provide some additional written guidance and resources to the longstanding employee vs. independent contractor debate, in an effort to assist both individuals and business owners.  Generally, businesses must withhold income and FICA taxes, and pay unemployment taxes for employees, but are not required to do so for independent contractors, so it is very important for both the business and individual to accurately make this determination in advance of the employment. IRS Publication 1779 outlines three primary characteristics that the IRS will use to determine the relationship between businesses and workers: The first factor, “behavioral Control” looks at facts that show whether or not a business has a right to direct or control how a worker does the work through instructions, training, or some other similar manner.  Instructions can include how, when, or where to do the work, what tools to use, what assistants to hire, and where to purchase supplies and services. The second factor “financial control” examines facts that show whether or not a business has a right to direct or control the financial and business aspects of the work.  An individual may be classified as an independent contractor if they have significant financial investment in their work, if they have a high percentage of unreimbursed business expenses, or if they can realize a profit (or incur a loss). The final factor “relationship of the parties” analyzes facts that illustrate how both the business and the worker perceive their relationship.  Some examples of this factor include whether or not an individual receives employee benefits and whether or not there is a written contract that demonstrates the intent of the parties. Summertime Tax Tip 2010-20 notes that if a business has the right to control or direct not only what is to be done, but how the work is to be done, then the workers are most likely employees, but if the business cannot control how it is to be done, then the workers are most likely independent contractors.  In addition, the tax tip notes that employers that misclassify workers as independent contractors can end up with substantial tax bills and penalties.  Finally, it is noted that both employers and workers can petition the IRS directly to make a determination, by filing form SS-8. Since this issue is ultimately decided by a facts and circumstances test, it is certainly welcome news that the IRS has issued additional written guidance to aid taxpayers in the determination.  However, it remains to be seen how this guidance will be received by the courts when similar issues are litigated in the future. Please note that additional information and links to the forms and publications referenced in this discussion can be accessed at the following sections of the IRS website: http://www.irs.gov/newsroom/article/0,,id=173423,00.html and http://www.irs.gov/businesses/small/article/0,,id=99921,00.html    
Categories: Tax

Why Is It So Difficult to Write Off Your Home Office?

by Steven Sodini 18. May 2012 10:00
These days almost everyone seems to work from home, at least occassionally. According to the U.S. Census, about half of all U.S. businesses are based at home, and most professionals work from home at least some of the time, so it’s only right that you should get a tax break for segregating part of your home over to your job. Wishful thinking. The IRS doesn’t think you deserve a write-off for reading your smartphone in the bathroom. For those who legitimately have separate spaces in their homes used under IRC Section 280A “exclusively and regularly” for work (and for employees, the use must also be for the convenience of the employer), the IRS offers some relief, but it’s not easy to claim. IRS Publication 587 for the home office deduction runs 34 pages, and only about a third of eligible taxpayers actually take it, because of the confusing legal history in this area, the recordkeeping requirements, the increased risks of audit by the IRS, and the difficulty determining what portion of the home is actually used for business in a given tax year. The convoluted history of this part of the tax code reveals how, over the years, work escaped from the offices and factories to invade every inch and hour of a person's life, particularly this day in age with the aforementioned smartphones, that allow a person to be plugged in 24-7-365.  A 32 page law review article titled "Simplication is not enough: An Analysis of the Home Office Deduction and the Home Office Simplification Act of 2009" in the 2010 Baltimate Law Review recounts the entire situation in detail.  However, what actually counts as a legitimate home office has been unclear from the start. Before 1976, the tax code had no specific home office provision, but employees who were required to work from home could write off some related costs.  In 1969, in Newi vs. Commissioner, the Tax Court ruled that George Newi, a TV ad salesman who spent three hours a night working from his converted den, could deduct a quarter of his rent, even though he worked after hours by choice when he could have returned to the office. That loose, fuzzy standard invited generous interpretation by people, including one individual who was actually an attorney for the IRS.  In Bodzin vs. Commissioner, Stephen Bodzin tried to write off part of his rent because he did some work at home in the evenings and on weekends. In 1975 (eight years after the tax return in question), Bodzin lost his case against the agency he worked for when an appeals court found that his home wasn’t his place of business. Rather, he sometimes, by choice, did some of his reading and writing at home. The following year, Congress later passed a tax reform law that narrowed the home office definition to prevent taxpayers from abusing the deduction, which caused even more confusion. In another case, Drucker vs. Commissioner, musicians for the Metropolitan Opera who spent 30 hours a week practicing in their homes were initially denied the break because a court ruled that their place of work was Lincoln Center; they won on appeal. In Commissioner vs. Soliman, an anesthesiologist who did paperwork at home because he had no hospital office was denied his write-off by the Supreme Court in 1993. “The facts in each case will vary, making it difficult to develop a bright line test,” the high court said.  This case in particular, set off a firestorm, because it completely denied a home office deduction for legitimate business expenses for numerous professions, including painters, carpenters, landscapers, construction workers, doctors, professors, musicians, artists, and sales professionals, because these types of professions effectively required the business to be conducted at other locations, rather than the home office. However, in 1997, Congress finally decided to correct the problems resulting from the Soliman decision, and passed the Taxpayer Relief Act to explicitly include home offices used for administration in businesses that have no other fixed location, which would give Dr. Soliman the tax break he requested years earlier.  However, as previously noted, the legislative solutions still treat self-employed individuals different from employees, as the latter are required to show additional evidence that the home office is for the convenience of the employer, rather than themselves, which is often difficult to prove. For the past decade, advocates for the home-based workforce have sought to give taxpayers the option to check a box for a standard $1,500 home office write-off. That would save them the difficulty of calculating what percentage of the home is dedicated to business—and therefore what share of rent, insurance, utilities, and maintenance costs can be deducted. Various versions of the proposal have languished in Congress for years to no avail. Unlike employees’ wages, business income and deductions can’t be easily verified by the IRS. In one analysis, 57 percent of sole proprietors misreported income, compared to one percent of employees. So the IRS doesn’t have much of an interest in making it easier to take the home office deduction, for fear that it could be easily abused to short-change Uncle Sam. That leaves a headache for those trying, legitimately, to write off the cost of a workspace that happens to be in the same place that they sleep.  Even the various proposals that have arisen over the years, do not address the primary problems of the disparity in the treatment of self-employed individuals vs. employees and the requirement that the home office be used on a regular basis, without defining what "regular basis" actually means.  A simple solution would be to repeal the "for the convenience of the employer" requirement for employees, which would then put everyone on equal footing and clearly defining "regular use" with some type of minimum use standard.  Unfortunately, the most recent attempt to clear of the legal confusion in this area, the "Home Office Simplification Act of 2009", died in committee, and no new legislation appears to be on the horizon, so the future in this area is still very much unclear.
Categories: Tax