1

Federal, State and Local Federal, State and Local Government SpecialistGovernment Specialist

Donna RichardInternal Revenue Agent512-499-5033

2

Internal Revenue ServiceInternal Revenue Service

County Governments

Municipal Governments

Federal Agencies

State Agencies

School Districts

3

FSLG FSLG FIELD OPERATIONSFIELD 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

4

OUTREACH AND AUDITOUTREACH AND AUDIT

Conferences

Compliance Checks

Examination

5

HOT TOPICSHOT TOPICS •Section 218 Agreements

•Required Federal Return Filings•Fringe Benefits•Worker Classification

6

FSLGFSLGHISTORICAL OVERVIEWHISTORICAL 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

7

Form 941Form W-2Form 1099

REQUIRED FILINGS

8

Types of Payments/ServicesTypes of Payments/ServicesReported on the FORM Reported on the FORM 1099-MISC ( By Box)1099-MISC ( By Box)Rents – Box 1Other Income – Box 3Backup Withholding (BWH)– Box 4Medical/Health Care Payments – Box 6Non-employee Compensation – Box 7Gross Proceeds to Attorneys – Box 14

9

Information Needed From Information Needed From PayeePayee 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

10

Who Does Who Does NOTNOT Get 1099-MISC? 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

11

Who Does Who Does NOT NOT Get Form Get Form 1099-MISC? Contd….1099-MISC? Contd….

Exempt Organizations IRC §501(c)(3)Governmental Entities

12

Failure to Secure a Vendor’s Social Security Number or Taxpayer Identification Number May Subject Your Agency toBACKUP WITHHOLDING.” (IRC 3406) 28%

13

CP 2100 FROM IRS: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

14

Never assume an entity is Never assume an entity is incorporated!incorporated!

LC – Limited CompanyLLC – Limited Liability CompanyLP – Limited PartnershipLLP – Limited Liability Partnership

15

FEDERAL STATE AND FEDERAL STATE AND LOCAL GOVERNMENTSLOCAL GOVERNMENTS

FRINGE BENEFITS

16

WHAT IS A FRINGE WHAT IS A FRINGE BENEFITS? BENEFITS?

ANY PROPERTY, SERVICE OR CASH (Other than Salary, Provided by Employer)

TAXABLE UNLESS EXCLUDED SPECIFICALLY BY LAW– Example: Medical Premiums IRC

106

17

TAXABLE FRINGE BENEFITS: TAXABLE FRINGE BENEFITS:

INCLUDE in Employee’s wages and on W-2 (Never on 1099-MISC)

Subject to Federal Withholding, Social Security and Medicare

Even if benefit is received by/for spouse or child of employee

18

NON-TRAVEL FRINGE NON-TRAVEL FRINGE BENEFITS:BENEFITS:

Clothing/uniformsCell phones AwardsBonuses

19

AWARDS ARE TAXABLEAWARDS ARE TAXABLE

CASH PRIZES OR AWARDS are always taxable

PERFORMANCE AWARDS are always taxable

NON-CASH: – Use Fair Market Value

20

AWARDS EXCEPTIONS: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.

21

TRAVEL-RELATED FRINGE TRAVEL-RELATED FRINGE BENEFITS:BENEFITS:

Per Diem Allowances – for lodging, meals and/or incidentals– for business related travel– while away from home

22

MEAL ALLOWANCES WHILE MEAL ALLOWANCES WHILE TRAVELING ON BUSINESS:TRAVELING ON BUSINESS:

MEALS AWAY FROM HOME:– OVERNIGHT

Accountable Plan - Not taxable

– NOT OVERNIGHTTaxable as wages

23

MEAL ALLOWANCES WHEN MEAL ALLOWANCES WHEN NOTNOT TRAVELING: TRAVELING:

Meals with business meetings -– NOT taxable if:

clear business settingdirectly related

Employer buys you lunch -– Taxable as wages

24

EMPLOYER-PROVIDED EMPLOYER-PROVIDED VEHICLE:VEHICLE:

HOW DOES EMPLOYEE ACCOUNT FOR PERSONAL USE?

Personal Use is taxable Verified Business Use is not taxableEmployee can reimburse Employer

for personal use

25

VALUING PERSONAL USE - VALUING PERSONAL USE - THREE RULES:THREE RULES:

Automobile Lease Valuation Rule*Cents-Per-Mile RuleCommuting Rule

26

Non-Taxable Fringe Benefits:Non-Taxable Fringe Benefits:

No additional cost serviceQualified employee discountsWorking condition fringeDe minimis fringeQualified transportation expensesQualified Moving Expense

Reimbursements

27

REMEMBER:REMEMBER:

If the benefit is taxabletaxable:– Determine the Value of the benefit – Include it in Wages and W-2

28

Independent Contractor Independent Contractor vs. vs. EmployeeEmployee

29

How do you make this How do you make this determination?determination?

30

Employee or Independent Employee or Independent Contractor?Contractor?Determine the Worker’s Status

Who has the right to control the worker?

– 3 Categories of EvidenceBehavioral ControlFinancial ControlRelationship of the Parties

31

Right to direct and controlRight to direct and control

The right to direct and control the means and details of the work

32

BEHAVIORAL BEHAVIORAL RELATIONSHP: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.

33

FINANCIAL CONTROL:FINANCIAL CONTROL:

If the firm provides an office,– all office supplies, computer– and other business equipment to the

worker, – the worker is an employee.

34

RELATIONSHIP OF THE RELATIONSHIP OF THE PARTIES:PARTIES:

If the firm provides benefits:– health insurance, life insurance,– retirement benefits, 40l(k) plan, 403(b)– the worker is an employee.

35

INDEPENDENT INDEPENDENT CONTRACTORCONTRACTOR

Offers services to public Operates own business Bills for services Doesn’t have to personally perform work

36

COMMON COMMON MISCONCEPTIONS:MISCONCEPTIONS:

EMPLOYEES CAN BE: Part-time workers Temporary workers Probationary period Workers who say they are

Independent Contractors

37

State LawsState Laws

Worker may be an employee for Federal Law purposes and an independent contractor for State purposes,or vice versa.

38

Dual Status Worker – 1 EntityDual Status Worker – 1 Entity

Employee– Accountant

– Wages on Form W-2

– Withhold FITW

– Withhold FICA

Independent Contractor– Janitorial Services

– Compensation on Form 1099-MISC

39

Examples of Elected and Appointed Officials – Mayor

– City Attorney

– Judge or Justice of the Peace

– Building Inspector

– Board Members

– Road Commissioner

– Animal Control Officer

Elected And Appointed Elected And Appointed OfficialsOfficials

40

Employee – Position established by law – Duties defined by statute– Performs duties as a public official– Responsible to the public– Paid out of governmental funds

Elected And Appointed Elected And Appointed OfficialsOfficials

41

LOOK AT THE FACTS LOOK AT THE FACTS

No single fact provides the answerWeigh all of the evidence

42

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)

Sources Of InformationSources Of Information

43

IRS CONTACTS:IRS CONTACTS:

IRS INFORMATION 1-800-829-1040

CUSTOMER ACCOUNT SERVICES 1-877-829-5500

44

QUESTIONSQUESTIONS

45