Tuesday, May 20, 2014

When Does the Workday Begin ... and End?

Technology now allows employees to do small amounts of work at remote locations. When is this considered compensable time? These two questions dive into that question:

Computer log-in time: Paid or not?

Question: We ditched out time-clock, so now nonexempt employees clock in on their computers. What about the few minutes it takes for them to boot up their computer each morning? Is that compensable?

Answer: Technically, yes. The Fair Labor Standards Act (FLSA) considers this time compensable, since employees are engaged to wait. However, regulations (29 CFR 785.47) allow employers to disregard insubstantial or insignificant periods of time beyond employees' regular work day if, as a practical matter, this time can't be precisely recorded for payroll purposes.

Warning: This rule applies only when there are uncertain and identifiable periods of time of a few seconds or minutes, and where the failure to count the time is justified by business realities. The Department of Labor makes these determinations on a case-by-case basis, so check with the company's attorney before deciding not to pay employees for this time.

How to handle disparity for after-hours meetings?

Question: Our company often holds meetings after office hours. Full-time nonexempts are paid at their overtime rates, but part-time nonexempts are paid straight-time wages, since they never work longer than 40 hours in a workweek. Hard feelings have arisen among the part-timers about this disparity. Can we pay everyone at the same rate so that everyone is paid equally?

Answer: Not really. An expensive option would allow you to pay part-timers at their overtime rates, but you couldn't pay full-timers at their straight-time rates unless you knew that they wouldn't be working overtime during that week. A less expensive option would be to convert after-hours mandatory meetings into voluntary meetings. Under FLSA, meetings are voluntary if they're conducted after work, attendance is voluntary, meetings aren't directly related to employees' work and employees don't perform any productive work during that time.

Secrets of the IRS Payroll Audit Program

The IRS is in the middle of intensive, line-by-line audits of payroll returns conducted under the auspices of the IRS' National Research Program (NRP). The two-year-old NRP audits program will randomly target 2,000 employers in 2014/

We know more than you think we know. NRP audits focus on worker classification, fringe benefits, officer compensation and Form 1099-MISC. Auditors aren't coming into your business blind. For example, if the source return is Form 1120S, prior and subsequent 1120S forms, W-2 forms, 1099-MISC forms and CP2100 notices will be included in auditors' files. Auditors will also have learned about your business by surfing your website.

Keep cool under pressure. The IRS kicks off each NRP audit with a 3851-B letter. While your Forms 941 and 1120 may be in order, it's not what's on those forms that most interests auditors. The IRS is keen to determine items that could be fringe benefits that aren't on those returns.

With that in mind, here are four tips for handling the NRP process:

1. Assess your liability for hidden fringes by examining every payment rank-and-file employees receive. If the tax code doesn't specifically exclude a payment from income, it's taxable. Hidden fringes can lurk in employer-provided meals, tax-free fringes that exceed their ceiling (e.g., $5,000 a year for dependent care) and reimbursed expenses that aren't paid under an accountable plan.

2. Go through the same process for executive compensation, but also include executive compensation agreements, loan agreements, and non-qualified deferred compensation plans. Additional hidden fringe benefits may lurk in executive dining rooms, country club dues, sky boxes, and chauffeur services.

3. To determine the status of independent contractors, apply the safe harbor factors of Section 530 of the Revenue Act of 1978: You treat all independent contractors consistently by filing Forms 1099-MISC, if necessary; you treat all similar independent contractors similarly; and you have a reasonable basis for your actions.

4. Forms 1099-MISC must be provided to non-corporate service providers to whom you pay $600 or more a year. Service providers' Taxpayer Identification Numbers (TINs) must be reported on the form. Auditors will look through your accounts payable books to assess compliance. Warning: If you don't have service providers' TINs prior to payment, you must backup withhold at the 28% rate.

Monday, May 19, 2014

Tax Information for Students Who Take a Summer Job

Many students take a job in the summer after school lets out. If it’s your first job it gives you a chance to learn about the working world. That includes taxes we pay to support the place where we live, our state and our nation. Here are eight things that students who take a summer job should know about taxes:

1. Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your taxes when you’re an employee. If you’re self-employed, you may have to pay estimated taxes directly to the IRS on certain dates during the year. This is how our pay-as-you-go tax system works.

2. As a new employee, you’ll need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.

3. Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.

4. Money you earn doing work for others is taxable. Some work you do may count as self-employment. This can include jobs like baby-sitting and lawn mowing. Keep good records of expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction may help lower your taxes.

5. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.

6. You may not earn enough from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count toward your coverage under the Social Security system.

7. If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you’re considered self-employed. If you don’t meet those conditions and are under age 18, you are usually exempt from Social Security and Medicare taxes.

8. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded. You can prepare and e-file your tax return for free using IRS Free File. It’s available exclusively on IRS.gov.

Visit IRS.gov for more about the tax rules for students.

Additional IRS Resources:

• Student's Page - High School
• Student's Page - Higher Education