President Biden has proposed major changes to the Federal tax laws, some of which are sought to be effective earlier in 2021 (i.e., we are already operating under these changes, if they later become adopted), as compared to the effective date the new tax law changes may be passed by Congress or a later effective date (such as beginning January 1, 2022). The Biden administration proposals must first be approved by Congress. As Congress is now considering these tax law change proposals, the following is a summary of some of the most important:
- Increase the corporate income tax rate from 21 ...
On March 11, 2021, President Biden signed into law the American Rescue Plan Act (“ARPA”). The ARPA mandated several important changes for both employers and employees. One of these is potentially significant for both: full subsidies for employer-paid COBRA premiums. The ARPA requires employers to provide temporary, fully subsidized COBRA continuation coverage premiums for certain individuals for up to six months. Employers will be able to recover the subsidized premiums by claiming a tax credit.
The benefits provided to employers and employees are available to COBRA ...
On March 11, 2021, President Biden signed into the law the American Rescue Plan Act (“ARPA”) containing $1.9 trillion in financial stimulus. Though not highly publicized, the ARPA provides important relief related to plan funding for both single employer and multiemployer pension plans. This article will focus solely on the single employer pension plan provisions of the ARPA.
Pension plans are required to maintain certain funding levels. Funding levels are determined by a series of complex calculations usually performed by actuaries hired by plan sponsors. These ...
Among the many employee benefit deadlines extended due to the pandemic by joint action of the Department of Labor and the Internal Revenue Service are the deadlines for making a Cobra election and paying the Cobra premiums. For purposes of these deadlines, the COVID-19 “outbreak period” is disregarded. President Trump declared COVID-19 as a national emergency as of March 1, 2020, which is the beginning of the “outbreak period.” The national emergency will end when the President declares it ended. The end of the “outbreak period” is 60 days after the end of the national ...
In March 2020, I posted a blog reviewing the evolution of the legal analysis applied to a retirement plan’s holding of “employer securities” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). See “If Your Retirement Plan Holds Employer Securities, Keep an Eye on the Jander Case.” In that blog, I reviewed the “Moench presumption” and the Supreme Court’s rejection of the “Moench presumption” in Fifth Third Bancorp v. Dudenhoeffer, 134 S.C. 2459 (2014).
In Dudenhoeffer, the Supreme Court announced a three-factor standard for ...
The SECURE Act of 2019 made three statutory changes to ERISA regarding lifetime income benefit payments from defined contribution plans (e.g., 401(k), 403(b), profit sharing, and money purchase pension plans). This blog will cover one of those changes – an amendment to Section 105 of ERISA. Section 105 requires the plan administrator to issue periodic benefit statements to participants and requires the disclosure of certain information on those statements, such as the participant’s account balance, vesting, and the value of each investment in the account. The SECURE Act ...
The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) became law on April 7, 1986. For most of its nearly 35-year history, litigation involving COBRA has been relatively quiet. Most COBRA claims are tag-alongs, added as an afterthought to various sorts of discrimination claims, and a few cases involving the definition of “gross misconduct” (essentially the one narrow exception where an offer of COBRA coverage is not required).
In the wake of the pandemic, this is changing. Recently, there have been a number of cases filed (most filed as class actions) involving ...
The U.S. Department of Labor (the “DOL”) recently released an information letter that concludes, if certain conditions are met, a plan fiduciary will not violate his fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) by offering a “professionally managed asset allocation fund with a private equity component as a designated investment alternative for an ERISA covered individual account plan.” This information letter (DOL Information Letter to Jon W. Breyfogle, June 3, 2020; hereinafter referred to as the ...
Employers face a constant struggle to attract and retain quality employees. This is especially true in a strong economy where jobs are plentiful and the demand for well-qualified workers is high. Historically, employer contributions to 401(k) plans have been viewed as an effective and efficient recruitment and retention tool. Unfortunately, many employers are finding this inadequate in today’s market because some employees, especially younger employees, prioritize other financial needs ahead of saving for retirement. For many young employees, student loan debt is a ...
Businesses that have employees must pay wages and salaries to their employees, and the employer must collect federal employee income taxes and the employee's share of social security (FICA) from these wages and salaries, add the employer's "matching share" of FICA, and then deposit these taxes with the IRS. The Employer must file a quarterly return with the IRS (Form 941) reporting all wages and salaries paid, all tax deposits made during the quarter, and pay any balance due with the quarterly return.
The Recession took a heavy toll on businesses throughout the country, with many ...
On August 8th, the IRS released its much-awaited Proposed Regulations on the new Section 199A 20% profit deduction for pass-through businesses. The new deduction applies to essentially all types of businesses other than C corporations, and was created under the 2017 Tax Cuts and Jobs Act. Individuals can begin claiming the deduction on their upcoming 2018 tax returns. The Proposed Regulations issued by the IRS, and released through Announcement IR-2018-162, provide important guidance to taxpayers and tax practitioners alike on this new federal income tax deduction.
The ...
The Internal Revenue Service today issued its much-anticipated Proposed Regulations on the new Section 199A 20% deduction for owners of pass-through business entities. This important deduction was created under the 2017 Tax Cuts and Jobs Act, the most significant tax reform legislation in over 30 years.
The Proposed Regulations, embodied primarily in Proposed Treasury Regulations § 1.199A-1 through 6, were announced by the IRS in Announcement IR-2018-162, and are available through the IRS website, www.irs.gov. The IRS issued a related Announcement IR-2018-164, and which ...
Generally, an employer is required to deduct and withhold Federal Insurance Contribution Act taxes ("FICA"), Federal Unemployment Tax Act taxes ("FUTA"), and income tax withholding from its employee's wages and is separately liable for the employer's share of FICA and FUTA. However, in some cases, an employer will use a third party to perform some or all of the employer's federal employment tax withholding, reporting, and payment obligations.
Common third-party payer arrangements include: a payroll service provider ("PSP"), a reporting agent ("RA"), a professional employer ...
The IRS requires businesses to obtain a Form W-4 from each employee, and also a Form W-9 from contractors and others who may receive payments for services. If a business does not receive these forms, the business must deduct and withhold “back-up withholding” from all wage and other payments to these individuals equal to 24% of the payments (down from 28% prior to 2018). Amounts withheld from an employee/contractor’s payments as back-up withholding are reported on Forms W-2/Form 1099 by the business, and should be reported as federal income tax withheld on the ...
Section 530 Relief
Employers that have workers which the employer classifies as "independent contractors" (Form 1099) risk having these workers reclassified by the IRS as employees. This is a major audit area for the IRS. If the IRS does audit an employer, and reclassifies "contractors" as "employees" this will subject the employer to substantial federal employment tax liabilities, penalties, and interest, and the employer will also be required to treat the "reclassified" contractors as employees going forward.
If an employer is audited by the IRS, the IRS will generally find ...
IRS Voluntary Worker Classification Settlement Program
Employers that have workers which the employer classifies as "independent contractors" (Form 1099) risk having these workers reclassified by the IRS as employees. This classification is a major audit area for the IRS. If the IRS does audit an employer and reclassifies "contractors" as "employees" this will subject the employer to substantial federal employment tax liabilities, penalties, and interest. The employer will also be required to treat the "reclassified" contractors as employees going forward.
If an employer ...
IRS Form SS-8 Determinations of Employee Status
Employers that have workers which the employer classifies as "independent contractors" (Form 1099) risk having these workers reclassified by the IRS as "employees." This determination is a major audit area for the IRS. If the IRS does audit an employer and reclassifies "contractors" as "employees" this will subject the employer to substantial federal employment tax liabilities, penalties, and interest. The employer will also be required to treat the "reclassified" contractors as employees going forward.
A worker treated by an ...
Employers that pay wages and other forms of compensation to their employees must comply with federal tax return filing and payment/deposit requirement. Employers that receive services from non-employee contractors and which make payments to these contractors must also separately report these payments. The IRS imposes penalties on employers who fail to timely meet their filing requirements, as well as penalties and interest for not making timely tax deposits and/or payments to the IRS.
- Penalties
Forms 941 and 940
- Subject to limited "reasonable cause" exceptions, the failure to ...
Employers that pay wages and other forms of compensation to their employees must comply with federal tax return filing and payment/deposit requirement. Employers that receive services from non-employee contractors and make payments to these contractors must also separately report these payments.
- Federal Employment Tax - Form 941
a. Employers are required to collect federal employee income withholding taxes and the employee's share of Federal Insurance Contributions Act taxes (FICA), from wages paid to employees, match the employee's share of FICA, and deposit these ...
Businesses that have employees and pay wages and salaries must withhold federal employee income taxes and the employee's share of federal employment taxes (FICA) from these wages and salaries. The employer must "match" the employee's FICA share, and these three components then become the employer's "federal tax deposit," which the employer must electronically pay to the IRS periodically. The frequency of when federal tax deposits must be made by an employer varies (weekly, bi-monthly, monthly, etc.) depending on the amount of these federal "payroll" taxes that are due.
The ...
On May 4, 2016, the IRS announced that it would begin accepting applications for the voluntary certification of professional employer organizations ("PEOs") beginning July 1, 2016. PEOs are also commonly referred to as employee leasing companies. While the requirements of the certification program may be of interest to the PEO, the designation of a PEO as a certified professional employer organization ("CPEO") should be of major interest to the employers utilizing the CPEO. This blog will review the beneficial tax treatment resulting from a PEO's certification as a CPEO.
Under ...
Writing for an 8-0 majority, with Justice Kagan abstaining, Justice Anthony Kennedy handed down the Supreme Court's ruling in the closely-watched United States v. Quality Stores, Inc., et al. case March 25, holding that severance payments to involuntarily terminated employees are taxable wages under the Federal Insurance Contributions Act (FICA), and thus subject to Social Security and Medicare withholding. The Court took issue with a Sixth Circuit opinion which had found such payments not subject to withholding, stating that "[t]o reach its holding, the [Sixth Circuit] Court ...
A federal district court has ruled that the members of an accounting firm were each personally liable for the trust fund portion of the unpaid federal employment taxes of their client.
Buddy Light Accounting & Tax Services provided accounting and payroll services to their client, GC Affordable Dining, Inc., which included managing payroll and accounts payable, making federal tax deposits, issuing payroll checks to employees, and preparation of federal employment tax returns (Form 941) for the client. When the client began experiencing financial difficulties, it failed to make ...
The IRS announced an important settlement program on September 21, 2011 where the IRS will now give many employers substantial tax relief for treating employees as "independent contractors". Details of the settlement program were provided in Announcement 2011-64, which will officially be published in the Internal Revenue Bulletin 2011-41, to be issued October 11, 2011.
Whether a worker is performing services as an employee or independent contractor depends on the facts and circumstances and is generally determined under a multiple factor common law test focusing on whether the ...
Employers are generally required to withhold and pay employment taxes on wages paid to employees. Conversely, employers are generally not required to withhold and pay employment taxes on wages paid to independent contractors or nonemployees. If an employer incorrectly treats an employee as a nonemployee, the employer is potentially liable for the employment taxes which should have been withheld. The employer may often not learn of this liability for years, until an IRS notice appears in the mail.
Section 530 of the Revenue Act of 1978, as amended, provides relief for employers who ...
This post was co-authored by Adam Landy and Erik Doerring.
On July 5, 2011, the United States Tax Court abated penalties assessed by the IRS against a business taxpayer for failure to pay its employment taxes. The Tax Court agreed with the taxpayer that it had shown reasonable cause. In Custom Stairs & Trim Ltd. v. Commissioner, T.C. Memo 2011-155, the taxpayer, Custom Stairs and Trim Ltd. had a history of filing its IRS Form 941 timely and making timely employment tax deposits. Beginning in 2005 and continuing through 2008, however, Custom Stairs began experiencing financial hardship ...