IRS Announces New Voluntary Worker Classification Settlement Program

Past Payroll Tax Relief Provided to Employers Who Reclassify Their Workers as Employees

As per the IRS: The Internal Revenue Service today launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers. This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit. This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities.

“This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help give taxpayers and businesses a fresh start with their tax obligations.”

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees. 

To be eligible, an applicant must:

  •  Consistently have treated the workers in the past as nonemployees,
  •  Have filed all required Forms 1099 for the workers for the previous three years
  •  Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Full details, including FAQs, are available on the Employment Tax pages of IRS.gov.

As per the IRS Notice IR-2011-95  9/21/2011

 

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Time & Pay To Hold 6th Annual Blood Drive!

Time & Pay and the American Red Cross will hold the 6th Annual Time & Pay Blood Drives throughout the month of October. All drives will be held at the Johnson City American Red Cross Blood Center at 818 Sunset Dr. next to Mahoney’s Outfitters.

The Blood Drives, which are all open to the public, will be held:

  • Every Tuesday in October (2:30-7 PM) except 10/18
  • Every Wednesday in October (8 AM- 1PM)
  • Thursday Oct. 6th & Thursday, Oct. 13st (2:30-7 PM)
  • Saturday Oct. 15 (8:30 AM-1PM)
  • Monday Oct.  31st (2:00-6:00 PM)

Time & Pay will give presenting donors the chance to win an Aquarium vacation package for two to Gatlinburg. The drawing will be held in early Nov. The winner will have 1 year to use the package. “We are very pleased with the response our blood drives have received in the past,” said Time & Pay’s CEO Steve Scheu. He added, “We hope people will have just as much fun this year helping the Red Cross and our community with this very critical need.”  Presenting donors will also be entered into a national drawing to win two Delta Air Lines roundtrip tickets.

The Carolinas Blood Services Region of the American Red Cross, which serves the East Tennessee area provides lifesaving blood to more than 103 hospitals and must have 1,600 people give blood and platelets each weekday to meet patient needs.

Blood can be safely donated every 56 days. Most healthy people age 17 and older, or 16 with parental consent, who weigh at least 110 pounds, are eligible to donate blood. Donors who are 18 and younger must also meet height and weight requirements.

For more information, call Time & Pay at 423-854-9042 or call 1-800-Red Cross (1-800-733-2767) to schedule an appointment to donate blood.

 

 

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Labor Dept Reports on Unemployment Benefits Paid In Error

As you work on your payroll and pay your payroll taxes, you may be interested to learn that the Labor Dept has just released a report noting that, over the past 3 years, nearly $19 billion in unemployment benefits were paid to recipients in error. This translates into a error rate of 10.4%.  In the one year period 7/10 to 6/11, $50.9 billion in benefits were paid out, with $5.7 billion or 11.2% paid in error.

The report implied that those states with the more complex benefit systems appeared to have higher error rates. State representatives questioned the results of the survey as they questioned what the Labor Dept classified as an error. Representatives from Indiana, for example, noted that they require all recipients to note 3 businesses where the recipient sought employment on their request for benefits. If the individual only listed 2, the survey classified that as an error, while Indiana representatives indicated that they could not in good conscious deny the individual benefits. Indiana paid out $953 million in benefits 7/10 to 6/11 paying out over $567 million in error according to the Labor Dept, or an error rate of 59.7%. It is also noteworthy that Indiana is one of 3 states that had to borrow funds from the federal government in order to fund state benefits resulting in an increase in FUTA rates for all Indiana businesses in 2010.

For the period 7/10 to 6/11, Tennessee ranked 26th in the amount of benefits paid at $539 million but ranked 7th in error rate at 17.9% or $96 million. Virginia ranked 22nd at $692 million in benefits paid and 10th in error rate at 16.9% or $116 million. (Note that Virginia businesses will probably see a reduction in their FUTA tax credit and thus an increase in FUTA rates in 2011 as a result of unemployment benefit funds borrowed from the feds in order to meet benefit payment requirements.)  North Carolina ranked 10th with $1.56 billion in benefits paid and 28th with an error rate of 10.4% or $162 million paid in error. (NC businesses are also expected to see an increase in FUTA rates due to funds borrowed.)

According to the Labor Dept,  improper payments most often occur  for 3 reasons:  When recipients claim benefits even though they have returned to work; employers or their administrators don’t submit timely or accurate information about worker separations; or recipients don’t correctly register with a state’s employment-service organization. The Dept noted it has launched a plan to monitor 6 states, including Virginia and Indiana, in order to reduce the error rate in these states.

This report should get businesses’ attention as the Federal Government is proabably about to rasie many businesses Federal Unemployment tax rate due to all the money states, some of which are noted above, have had to borrow from the Feds to cover unemployment benefits paid out. (see Advi$or article 8/23/11)

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Feds, States to Investigate Construction Firms

The Department of Labor along with the IRS and eleven states have announced a broad review of the hiring and pay practices of home builders and other companies government regulating bodies proclaim routinely misclassify workers as independent contractors rather than employees. States include Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington as well as New York, Hawaii, Illinois, and Montana.

On Monday 9/19, the federal agencies and top labor officials from the states agreed to coordinate enforcement efforts and share information about companies found to have violated labor laws, including denying workers minimum wages, overtime pay and benefits. The Labor Department recently sent requests to large home builders looking for pay and employment records.

The IRS is interested in the issue because employers don’t pay payroll taxes on workers classified as independent contractors. A Government Accountability Office report from 2009 estimated that the misclassification of workers cost the federal government $2.72 billion in 2006. As the Advi$or has recently noted, the misclassification issue has taken a higher profile in the past few years as cash-strapped states have focused on ways to capture more revenue and prevent employers from illegally failing to pay taxes on workers.

The proper classification between employee and independent contractor depends primarily on how much control or direction a business has over its workers. The more control– such as telling them where, when and what to work on as well as providing them with tools or equipment to work with– the more likely the worker is an employee. Employers aren’t required to withhold income taxes or pay Social Security or Medicare taxes for independent contractors. Nor do they bear the cost of the company match of Social Security or Medicare taxes. Meanwhile, independent contractors aren’t covered by many labor protections, including minimum wage and overtime laws, and unemployment or workers’ compensation insurance.

Regulators believe worker misclassification is particularly common in residential construction. Most large home builders in the U.S. typically don’t keep many laborers on their books and do little actual home construction. Instead, they entrust much of the construction to carpenters, plumbers, roofers, electricians and others employed by contractors. This reduces the companies’ costs and exposure to potential violations of labor laws.

There are many forces at work regarding this issue. There is the lost tax revenues. Organized labor sees abuse and would like more construction workers protected under unionization. Those businesses that operate according to the letter of the law note that it is difficult to compete with those that supposedly do not. And of course there are the companies who have been operating the way they operate for years who note that this kind of regulatory scrutiny only increases the cost of doing business and thus the cost of finished construction projects for all. 

The Labor Department also noted that it was looking at other industries in addition to home building including hospitality, janitorial services, agriculture, day care, health care and restaurants. A Labor Department report in 2000 estimated that up to 30% of employers misclassify workers.

 
 
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IRS Seeks Public Input on Obamacare

Treasury, IRS Seek Public Input on Certain Employer Provisions of the Affordable Care Act  

The IRS along with the Treasury Department has requested public comment on a proposed affordability safe harbor for employers under the shared responsibility provisions included in the Affordable Care Act that will apply to certain employers starting in 2014.

Under the Affordable Care Act, employers with 50 or more full-time employees that do not offer affordable health coverage to their full-time employees may be required to make a shared responsibility payment. Notice 2011-73, posted today on IRS.gov, solicits public input and comment on a proposed safe harbor, designed to make it easier for employers to determine whether the health coverage they offer is affordable. To that end, Treasury and IRS expect to propose a safe harbor permitting employers that offer coverage to their employees to measure the affordability of that coverage by using wages that the employer paid to an employee, instead of the employee’s household income. This contemplated safe harbor would only apply for purposes of the employer shared responsibility provision, and would not affect employees’ eligibility for health insurance premium tax credits.

Today’s request for comment is designed to ensure that Treasury and IRS continue to receive broad input from stakeholders on how best to implement the shared responsibility provisions in a way that is administrable, allows flexibility, and minimizes burden.  By soliciting comments and feedback now, Treasury and IRS are giving all interested parties the opportunity for input before proposed regulations are issued.

Submit comments by:

  • E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-73” in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-73), Room 5203,P.O. Box7604, Ben Franklin Station, Washington, DC20044.

The deadline for comments is December 13, 2011.

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“As a former customer of one of those big national firms, not only does Time & Pay perform better in the payroll processing area with better products and services, but you are also way ahead of them in the customer service area. It is a pleasure working with your staff knowing that any help we need is readily available.”
-C – Comprehensive Community Services, Johnson City, TN

“As a new company to Johnson City, we were glad to find a local quality payroll service provider. We had used a national provider in Florida and were well aware of the advantages of outsourcing. Time & Pay offers all that the big national firms provide and more, including local, prompt and courteous customer service!”
-K H – JD Squared, Johnson City, TN

“After working with one of the national firms, the transition to Time & Pay was easy and beneficial. Their products and services exceeded what we were getting, were more cost effective, and their customer service goes above and beyond. We are very happy we made the change.”
-R V – Mountain Treasure Corral, Kingsport, TN

“From the start, Time & Pay has worked with us in many aspects of payroll and HR as we have grown from a single facility to a multi-state operation. They have allowed us to concentrate on that expansion while they have focused on keeping us compliant with payroll and timekeeping regulations. There customer service is exemplary! They are great to work with.”
-J G – Prime Choice Foods, Denver, CO

“Time & Pay does a great job handling both our corporate and independent store accounts. The flexibility of their on-line capabilities gives us the information we need when we need it. Their response to our diverse needs has been excellent.”
-B G – HobbyTown USA, Omaha, Nebraska

“We had been doing payroll in-house for years and was looking for a cost effective alternative. Your systems and services have been able to provide us with information and reports we were not able to produce with our old system. You have freed our time to concentrate on more important accounting aspects of our business. With the excellent services you provide, we would not consider any other payroll processing system.”
-Kwick-Way Transportation Co, Gray, TN

A while back, the state came to our office to audit our payroll records. When the auditor found out Time & Pay did our payroll, she stopped, packed her briefcase and informed us there was no need for the audit. She was very confident we were compliant.
-K B – GR&P Co. Bristol, TN

“Time & Pay saved us from hiring another employee to do our payroll. Along with providing great payroll services, they have given us the ability to easily track our labor cost for job costing.”
-J K – American Calendar, Greeneville, TN

“We find your integrated timekeeping and payroll easy to use and more accurate than the time sheets we were using. My time is now freed up to take care of my patients and other aspects of my business. Thanks for making the transition to outsourcing my payroll easy and cost effective.”
-B W – Westmoreland, DDS, Johnson City, TN

“Having Time & Pay as a payroll service has been a wonderful partnership. Their customer service, punctuality and attention to detail have surpassed our expectations and we are glad to have them as a partner in conducting all of our payroll functions. I would highly recommend their services to companies, large and small.”  
-T W – Little Things, LLC, Chattanooga, TN

11-11-2014

Payroll Benefit and Contribution Limits for 2015

The IRS has finalized payroll related benefits and contribution limits for 2015. Below are the maximum benefits and contribution limits. Elective Deferrals (401(k) and 403(b); not including adjustments and catch-ups) $18,000 457(b)(2) and 457(c)(1) Limits (not including catch-ups) $18,000 Section … Continue reading

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11-5-2014

4 States Vote to Increase Minimum Wage

Minimum wage referendums were on the ballot in Arkansas, Nebraska, Alaska and South Dakota on Tuesday. With the results in, all 4 will now raise minimum wage. The Arkansas referendum, which voters approved by a 65% to 35%  margin, will increase the minimum … Continue reading

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10-27-2014

Payroll, Voting and The Time Change

There are a few timely events coming up that Payroll and HR administrators need to be aware of…. 1-  On Nov. 2nd, daylight savings time expires and standard time returns. Clocks need to be set back 1 hour at 2am … Continue reading

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