Independent Contractor Enforcement: There's More Than The IRS To Fear

Janet Novack, Forbes Staff

Do you employ “independent contractors” or “freelancers” who might arguably be considered employees? Through the years, the employee classification issue has caused problems for businesses ranging from Lowe's Cos. and FedEx to the operator of a strip club.  And this issue is only heating up.  Forbes tax contributors have written extensively about the Internal Revenue Service’s recent crackdown on what it sees as misclassified workers. But the IRS isn’t alone. In the following guest column, John Thompson, a partner in the Atlanta office of Fisher & Phillips, a national labor law firm representing management, offers a warning about stepped-up enforcement by the U.S. Labor Department and a primer on worker classification. It’s timely reading considering that Thomas Perez, President Obama’s nominee for Labor Secretary, emphasized the issue when he headed up Maryland’s Department of Labor, Licensing & Regulation, from 2007 to 2009. 

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New Obamacare rules deal big blow to employers

By Jared Bilski

Companies have been hoping that their wellness program incentives will help their health plans meet affordability and minimal value requirements under Obamacare. So chances are they won’t like the guidance the IRS just issued.

Recently, the IRS — one of the three agencies responsible for issuing compliance deadlines and guidance for the Affordable Care Act — released a flurry of Obamacare guidance.

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Workers can be both employees and ICs, IRS rules

By Tim Gould

There are some things you just know: Friday follows Thursday and if a worker is an employee, he or she can’t be an independent contractor (IC). Right? Well, you might want to double-check your calendar because at least one of these truths has just been discredited.  

IRS recently came out with a Chief Counsel Ruling (IRS Info. Ltr. 01-0069) that says there are certain circumstances when a person can fill both employment roles at the same company – at the same time.

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Counting to 90: ACA and the waiting period

By Keith R. McMurdy

Under the Affordable Care Act, once we decide who we have to offer coverage to, then we have to decide when they get the coverage. Generally the new rule is that a waiting period for coverage cannot exceed 90 days. More recently, the IRS has given us proposed rules on the 90 day waiting period. As with all proposed rules, they are not final until they are final, but these do give employers some additional guidance on how to maintain the correct waiting period.

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April 15 is Big Day in More Ways Than One

April 15 is known as tax day because federal income tax returns are typically due on that day. Some employers and individuals may want to consider additional action items.

A protective claim for a tax refund is a process where any taxpayer can claim a refund while a relevant court case is pending. The deadline for filing a protective claim is typically three years from the original tax filing date. The deadline for protective claims for the 2009 tax year is April 15, 2013.

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ACA Waiting Period Compliance

There’s not much in life that comes without a little bit of waiting. This includes a “waiting period” before enrollment onto a group health plan as a new employee. The Affordable Care Act (ACA) changed how long a wait period can be imposed by an employer.

In August 2012, the IRS and DOL issued ACA guidance on the 90-day waiting period for plan years beginning on or after January 1, 2014. Simply put, an eligible employee or dependent does not have to wait more than 90 days before being covered under the group health plan. Do you have to change your waiting period for new hires to enroll onto your group health plan? How long is your current waiting period for new hires to enroll onto your health plan? Please comment below.

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Treasury Issues Rules on Employer Responsibility for Health Insurance

On December 28, the Treasury Department and the Internal Revenue Service (IRS) issued proposed regulations and questions-and-answers on the employer responsibility rules of the health reform law. The proposed regs are summarized here. The agencies also released questions-and-answers on the rules, intended to simplify and summarize the proposed regulation.

Generally, REG-138006-12 provides guidance on which employers must comply with the employer responsibility rules; to which employees they are required to offer affordable qualified health insurance; how to determine whether the coverage is affordable and qualified; how to calculate assessments; and, certain other administrative issues. The proposed reg also incorporates certain safe harbors and other interim rules contained in previously released Notices 2012-58, 2011-36, 2011-73 and 2012-17. These Notices provide guidance on how to determine whether an employee is full-time, and on basing measurements on self-only rather than family coverage.

The proposed regulation provides guidance on:

• How to measure “full-time” in order to determine which employees must be offered affordable qualified (minimum essential coverage, or MEC) health insurance
• How to determine if an employer is a large employer that will be subject to the requirement that it offer MEC
• How to calculate assessments if an employer will be subject to them for failure to offer MEC at all, or for the failure of its health insurance to be MEC and/or affordable
• How to determine if the MEC is affordable
• How to deal with certain administrative issues (such as how and when to pay assessments, comply with reporting requirements, etc.) 

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THE IRS AND THE TREASURY DEPARTMENT HAVE ISSUED FINAL REGULATIONS ON THE FEE ON CERTAIN ISSUERS AND PLAN SPONSORS

The IRS and Department of Treasury have issued final regulations on the fee imposed by the Patient Protection and Affordable Care Act on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to fund the Patient-Centered Outcomes Research Trust Fund.

The final regulations provide guidance on the policies and plans that are subject to the fee.

The final regulations also provide guidance on the requirements for
calculating, reporting, and paying the fee.

Issuers and plan sponsors must file Form 720, Quarterly Federal Excise Tax Return, once a year on July 31 of the calendar year following the last day of the policy year or plan year to report and pay the fee.

The fee applies for policy and plan years ending on or after October 1,
2012, and before October 1, 2019.

IRS ISSUES GUIDANCE ON $2,500 FSA LIMIT FOR 2013

IRS Issues Guidance on $2,500 FSA Limit for 2013

The U.S. Internal Revenue Service issued Notice 2012-40, with guidance on the $2,500 limit on pretax employee contributions to health care flexible spending accounts (FSAs) under the Patient Protection and Affordable Care Act (PPACA). The reform law limit on the amount that employees can set aside in FSAs is scheduled to take effect in 2013.

If you are beginning an FSA for this year or need to adjust to comply, do you have all the information that you need to do this?

·         How do you process short plan years?

·         What does this mean for Health Reimbursement Arrangements, Health Savings Accounts or Dependent Care FSAs?

·         Does this change what can be funded by employers?

·         How do you correct an error?

·         What do you do with married couples that work for you?

·         What’s going on with the use-or-lose rule?

Among the points clarified in the notice:

• The $2,500 limit is effective for plan years starting January 1, and not the taxpayer’s tax year. Employers with fiscal year health care FSAs may keep higher reimbursement limits in effect through the end of their 2012-2013 plan year.
• Employers may adopt retroactive amendments to impose the $2,500 limit before Dec. 31, 2014.
• The $2,500 limit applies only to salary reduction contributions under a health care FSA and does  not limit the amount permitted for reimbursement under an FSA for dependent care assistance or adoption care assistance. Nor does it apply to salary reduction or any other contributions to a health savings account (HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).
• The $2,500 limit also does not apply to employer nonelective contributions — sometimes called flex credits — nor to salary reduction contributions to a cafeteria plan that are used to pay an employee’s share of health coverage premiums (or the corresponding employee share under a self-insured employer-sponsored health plan) — sometimes referred to as “premium conversion” salary reduction contributions.
• Relief is provided for certain salary reduction contributions exceeding the $2,500 limit that result from a reasonable mistake and not willful neglect and that are corrected by the employer.

For more answers to your questions visit www.irs.gov and search Notice 2012-40.

IRS sets 2013 plan contribution limits

The IRS has released its new plan contribution limits for next year. Here’s what you’ll need to know for 2013.

These benefits-related updates are culled from the much-longer IRS news relase:

• Contributions toward 401(k), 403(b) and 457 plans. Employees can contribute up $17,500 come next year, a $500 increase over 2012.
• Catch-up contributions. Workers 50 years and older can still only contribute $5,500.
• Maximum contribution. There is a $1,000 increase in what what can be added to a defined contribution plan, from $50,000 to $51,000.
• Maximum pension benefits. Similarly, there’s a $5,000 increase in the annual benefit limit for defined benefit plans, from $200,000 to $205,000.
• Benefits calculation. The amount of employee compensation that can be considered in calculating contributions to defined contribution plans will increase from $250,000 to $255,000.
• Highly compensated employee definition. The earning threshold used to define a highly compensated employee will increase from $110,000 to $115,000.

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IRS’ new guidance on $2,500 FSA cap: 5 keys

June 4, 2012 by Christian Schappel

The Internal Revenue Service just issued guidance for employers and administrators of flexible spending accounts (FSAs) as they plan for the new rules that take effect in January 2013. 

As you know by now, the healthcare reform law contains a rule that annual contributions to FSAs will be capped at $2,500 beginning in 2013.

And the guidance clarifies these aspects of that rule: 

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Heads up: The IRS could be poking around your COBRA procedures

Got all your COBRA procedures in line? Because it looks like the IRS could be stepping up its audit program.

The IRS recently released revised audit guidelines for its COBRA investigators. The new rules cover reg changes in such laws as HIPAA and FMLA. 

Russell Chapman, Lisa Taggart and Andrea Jackson, writing on employeebenefitscounsel.com, outline some of what the new rules cover: 

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Tip Tuesday! Taxpayers Get More Time to Contribute to IRAs in 2012

IRS Tax Tip 2012-61, March, 29, 2012

You have two extra days this year to make contributions to your Individual Retirement Arrangements. That’s because April 15 falls on a weekend and Emancipation Day, a legal holiday in the District of Columbia, will be observed on Monday, April 16. That means the due date for filing your tax return and making contributions to your 2011 IRA is Tuesday, April 17.

Here are the top 10 things the IRS wants you to know about setting aside retirementmoney in a traditional IRA.

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit, formally known as the Retirement Savings Contributions Credit.
2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means you must make contributions for 2011 by April 17, 2012. If you contribute between Jan. 1 and April 17, you should designate the year targeted for the contribution.

Click Here for the complete list and forms.

IRS clears up W-2 health cost reporting rules

January 6, 2012 by Christian Schappel

The latest round of IRS guidance helps answer questions employers have raised about the requirement to report the cost of workers’ health insurance on W-2s.

The healthcare reform law mandates that employers that issue more than 250 W-2 forms for tax year 2012 must include on those statements the cost of employees’ healthcare coverage. 

Employers issuing fewer than 250 W-2s are exempt from this rule until it comes time to pass out 2013 W-2s — and possibly longer.

Points of clarification in the latest guidance:

• Employers can — but aren’t required to — report contributions made to health reimbursement arrangements
• The cost of services provided through employee assistance programs (EAP), wellness programs or on-site medical clinics is not required to be reported — unless the employer charges premiums for those services to COBRA beneficiaries

Click Here for more points, the original article and more links!

Is that holiday gift taxable? Here’s how to tell

December 21, 2011 by Christian Schappel

Cash gifts – you know they’re taxable. But what about non-cash holiday gifts? The answer: It depends. 

If they’re large, with a value in excess of $100, the employer must report the value of the gift on the recipient’s W-2 and withhold the appropriate amount of taxes.

Smaller gifts like flowers, fruit, books, snacks and the occasional tickets to entertainment events are considered de minimus fringe benefits by the IRS and are not subject to taxation.

The IRS also says it does not consider holiday parties to be a form of taxable compensation, as long as they are “reasonable.”

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Tactic to bolster HSA participation some companies don’t use

November 3, 2011 by Christian Schappel

Consistently encouraging employees to contribute to a health savings account (HSA) will only go so far. The best way to max out HSA participation rates is to stress its effectiveness as a retirement tool.

Here’s one thing many employees don’t know about HSAs: The funds left in them are not lost, they continue to grow.

The best way to relay that message to employees: Tell them HSAs work just like a 401(k), but with one big advantage — the tax-deferred funds that are put into the HSA can be withdrawn tax free when used to pay for qualified healthcare expenses.

And if a withdraw is made for another reason — say to pay for food, housing or a vacation — the money is taxed the same as a 401(k) withdrawal.

Now if employees wanted to use money from a 401(k) or IRA to pay for medical expenses, that money will be taxed as income by the IRS.

For the complete article and more related stories, Click Here!

IRS sets 2012 benefits limits

The Internal Revenue Service’s cost-of-living adjustments affecting dollar limitations for defined contribution and pension plans have been released. The IRS also made a few other changes employees will need to know about.

The 2012 retirement plan limits:

• 401(k), 403(b) and 457 plan deferrals. The largest annual contribution an employee can make through salary deferrals has increased to $17,000. That’s up from $16,500 in 2011.
• Catch-up contributions. The catch-up contribution limit for those 50 and older is unchanged at $5,500.
• Maximum contributions. The limit on what can be added to a defined contribution plan will increase to $50,000 from $49,000.
• Maximum pension benefits. The limit on the annual benefit under a defined benefit plan will increase to $200,000 from $195,000.

Other key changes

Two other changes employers need to be aware of:

• Definition of a highly compensated employee. The earning threshold used in the definition of a highly compensated employee has been increased to $115,000 from $110,000.
• Benefits calculation. The amount of employee compensation that can be considered in calculating pension benefits and compensation to plans will rise to $250,000 from $245,000.

Click here for the original article and more links!

Watch out for new push in FLSA enforcement

September 22, 2011 by Tim Gould

Heads up: The feds and a group of states are taking a tag-team approach to making sure employees are properly classified under the Fair Labor Standards Act.

The Department of Labor (DOL), Internal Revenue Service (IRS) and nine states are joining forces to crack down on companies that improperly classify workers as independent contractors.

The central concept is that state and federal agencies will now exchange information about companies in violation of the independent contractor rules.

That means an employer could be facing sanctions from both state and federal labor agencies — not to mention the tax implications of getting the IRS in on the act.

The states involved so far are Connecticut, Hawaii, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington.

Other states can join the initiative. It’s expected New York will come aboard in the near future.

The key questions

The move is but the latest chapter in ongoing efforts to crack down on the use of independent contractor status as a means to avoid “providing employment protections,” in the words of a DOL press release.

So once again, it’s time for employers to check classification procedures to make sure they’re in line with state and federal law. 

John E. Thompson, writing on Fisher & Phillips Wage and Hour Laws blog, offers a list of critical questions to ask when considering a worker’s FLSA status:

• Are the individual’s services an integral part of the organization’s activities?
• Does the individual have any significant investment in facilities or equipment?
• Does the individual have an opportunity for profit and loss in a business sense?
• Does the individual exercise a businessperson’s initiative, judgment, or foresight?
• Is the relationship is permanent or indefinite, rather than for a determinable time?
• Does the individual have meaningful and predominant control over the work’s details?
• How much control does the organization retain over the work’s details?

For more information and links Click Here.

Report: IRS to simplify health reform affordability test

August 18, 2011 by Christian Schappel

It looks like employers will soon have some clarity in how to calculate if their health plans are “affordable” and make sure they won’t be penalized under the reform law’s “pay or play” mandate.

The Internal Revenue Service will develop new, clearer rules for employers on how they can determine if their plans pass the reform law’s “affordability test,” according to a report byBusinessInsurance.com.

Currently, for a plan to pass the test an employee’s cost for single coverage cannot exceed 9.5% of his/her income. For each employee whose health premiums exceed that threshold, the employer must pay a $3,000 penalty.

The problem: When workers have more than one source of income, it is difficult for employers to calculate total income for the purposes of the affordability test.

The new rules are expected to allow employers to determine affordability based on an employee’s W-2 wages — and not total income, simplifying the calculation.

So to pass the test, employers will just have to make sure the cost for single coverage doesn’t exceed 9.5% of an employee’s W-2 wages.

The affordability test will only be applied to single coverage. Employers will be able to charge more for family coverage.

Click Here for the full article and more information.

Your Firm’s Chance to Weigh In On Healthcare Reform | Sumbit Comments to IRS | Deadline June 17, 2011

The IRS wants to hear your thoughts on one of the most controversial provisions in the healthcare reform law: the shared responsibility mandate. But you don’t have much time to respond. 

Employers have until June 17, 2011, to submit public comment to the IRS.

Commonly referred to as “Play or Pay,” the shared responsibility provision would require firms with at least 50 full-time equivalent (FTE) employees to pay a penalty if they fail to offer FTE workers healthcare coverage – or if they offer coverage that’s unaffordable or doesn’t provide minimum value, starting in in 2014.

Link to Article on CFODailyNews.com