Just Out

IRS

Use Form 8822 B to Report Change in Identity of Responsible Party for Your Retirement Plan.

Beginning January 1, 2014, any entity with an EIN, such as a plan sponsor, must report a change in the identity of their plan's responsible party on Form 8822-B, Change of Address or Responsible Party - Business, within 60 days of the change. If the change is made before 2014, and the sponsor has not previously reported the change, the sponsor should file Form 8822-B prior to March 1, 2014.  For retirement plans, "responsible party" is the person who has a level of control, directly or indirectly, over the funds or assets in the retirement plan. See the instructions to Form 8822-B, page 2, for a detailed definition of "responsible party" and an explanation of who must sign the form.

DOL/EBSA

On September 18 the Department of Labor's Employee Benefits Security Administration (DOL/EBSA) announced new guidance regarding same-sex marriages and employee benefit plans.  In Technical Release 2013-04, DOL/EBSA provides guidance interpreting the Supreme Court's decision in United States v. Windsor impact on ERISA.  The technical release states that, in general, the terms "spouse" and "marriage" in Title I of ERISA and in related DOL regulations should be read to include same-sex couples legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where they currently live. On June 26, 2013, the Windsor decision struck down the provisions of the Defense of Marriage Act that denied federal benefits to legally married, same-sex couples.  

Are Your Workers Properly Classified (Employee vs. Independent Contractor)?

If you are a business owner, or an independent contractor who provides services to other businesses, then you are generally considered self employed.  If you hire workers you must decide how to classify these workers.  Are these workers employees or independent contractors.

To determine how to classify a worker you must analyze your working relationship with the worker.  The general rule is that a worker is an independent contractor if you have the right to control or direct only the result of the work and not what will be done and how it will be done to get the end result.  The worker is not an independent contractor if they perform services that can be controlled by you (what will be done and how it will be done).  This applies even if the worker is given freedom of action.  What's key when determining whether the worker is an independent contractor or an employee is the degree of control and independence given to the worker.  If there is no employer-employee relationship than the worker is an independent contractor and would be self-employed and responsible for their taxes.  If you have the legal right to control the details of how the services are performed and there is an employer-employee relationship the worker is not an independent contractor and the worker's pay may be subject to FICA(Social Security tax and Medicare) and income tax withholding.

Classification of Workers

When classifying workers, they will fall into one of the following categories:

·       an Independent Contractor

·       an Employee (Common-Law Employee)

·       a Statutory Employees

·       a Statutory Nonemployees

Under common law rules, the three characteristics below can be used to determine the facts that provide evidence of the degree of control and independence needed to determine the relationship between you and your workers.

1.   Behavioral Control:  Facts that answer, do you control or have the right to control what the worker does and how the worker does his or her job through instructions, training, evaluation, or other means.

2.   Financial Control:  Facts that answer, are the business aspects of the worker's job controlled by you (i.e. hours, how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.).

3.   Type of Relationship:  Facts that answer, how do you and your worker perceive their relationship, are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, sick pay, etc.), will the relationship continue and is the work performed a key aspect of the business.

Note:  Look at the entire relationship, consider the degree or extent of the right to control or direct, and finally, document each of the factors used in coming up with the determination.

If you are still unclear if you have a worker who is an independent contractor or an employee you may file a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding with the IRS.  The form can be filed by either you or your worker.  The IRS will review the facts and circumstances and officially determine the worker's status.  Plan accordingly because the IRS determination could take up to six months.

Once a determination is made, the next step is filing the appropriate forms and paying the associated taxes.

Misclassification of Workers

If you misclassify a worker and have no reasonable basis for doing so, you may be held liable for employment taxes for that worker (the relief provisions discussed below will not apply).

Relief Provisions - If you have a reasonable basis for not treating your worker as an employee, you may be relieved from having to pay employment taxes for that worker.  To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker.  You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977.  See Publication 1976, Section 530 Employment Tax Relief Requirements for more information.

Misclassified Workers - if your workers believe they have been misclassified they may file Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of the uncollected Social Security and Medicare taxes due on their compensation.  The worker must meet one of several criteria indicating they were an employee while performing the services.  The criteria include:

·       The worker has filed a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and received a determination letter from the IRS stating they are an employee of the firm.

·    The worker has been designated as a section 530 employee by you or by the IRS prior to January 1, 1997.

·  The worker has received other correspondence from the IRS that states they are an employee.

·       The worker was previously treated as an employee by you and they are performing services in a similar capacity and under similar direction and control.

·     The worker's co-workers are performing similar services under similar direction and control and are treated as employees.

·     The worker's co-workers are performing similar services under similar direction and control and filed Form SS-8 for you and received a determination that they were employees.

·       The worker has filed Form SS-8 with the IRS and has not yet received a reply.

Voluntary Classification Settlement Program (VCSP) is a voluntary program that provides you with an opportunity to reclassify your workers who are classified as independent contractors or other nonemployees as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes if you are eligible and you agree to treat your workers (or a class or group of workers) going forward as employees.  To participate you must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program at least 60 days prior to the date you want to begin treating your workers as employees, and enter into a closing agreement with the IRS.

To be eligible:

·       you must have consistently treated the workers as independent contractors or other nonemployees and must have filed all required Forms 1099 for the workers to be reclassified under the VCSP for the previous three years to participate. 

·       you cannot be under an employment tax audit by the IRS and you cannot be currently under audit concerning the classification of the workers by the Department of Labor (DOL) or by a state government agency.

If the IRS or the DOL has previously audited you concerning the classification of the workers, you will be eligible only if you have complied with the results of that audit and are not currently contesting the classification in court.

If you participate in the VCSP, you will agree to treat the class or classes of workers, going forward, as employees for future tax periods.  In exchange, you will:

• Pay 10 percent of the employment tax liability that would have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code. See VCSP FAQ 15, for information on how payment under the VCSP is calculated. Also see Instructions to Form 8952;
• Not be liable for any interest and penalties on the amount; and
• Not be subject to an employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.

Change in Health Flexible Spending Account Rules

The IRS recently issued guidance modifying the "Use it or Lose it Rule" for Health Flexible Spending Accounts.  The modification permits an employer, at its option, to amend its §125 cafeteria plan document to provide for the carryover to the immediately following plan year of up to $500 of any amount remaining unused as of the end of the plan year in a health FSA.

The carryover of up to $500 may be used to pay or reimburse medical expenses under the health FSA incurred during the entire plan year to which it is carried over. For this purpose, the amount remaining unused as of the end of the plan year is the amount unused after medical expenses have been reimbursed at the end of the plan's run-out period (see below for a description of the run-out period) for the plan year. In addition to the unused amounts of up to $500 that a plan may permit an individual to carry over to the next year, the plan may permit the individual to also elect up to the maximum allowed salary reduction amount under §125(i). Thus, the carryover of up to $500 does not count against or otherwise affect the indexed $2,500 salary reduction limit applicable to each plan year. Although the maximum unused amount allowed to be carried over in any plan year is $500, the plan may specify a lower amount as the permissible maximum (and the plan sponsor has the option of not permitting any carryover at all.)

A plan adopting this carryover provision is not permitted to also provide a grace period with respect to health FSAs. Nor is the plan, for any plan year, permitted to allow an individual to salary reduce for qualified health FSA benefits more than the indexed $2,500 salary reduction limit or permitted to reimburse claims incurred during the plan year that exceed the applicable indexed $2,500 salary reduction limit (and any nonelective employer flex credits) plus the carryover amount of up to $500. If an employer amends its plan to adopt a carryover, the same carryover limit must apply to all plan participants. A §125 cafeteria plan is not permitted to allow unused amounts relating to a health FSA to be cashed out or converted to any other taxable or nontaxable benefit. Unused amounts relating to a health FSA may be used only to pay or reimburse certain §213(d) medical expenses (excluding health insurance, long-term care services or insurance). With respect to a participant, the amount that may be carried over to the following plan year is equal to the lesser of (1) any unused amounts from the immediately preceding plan year or (2) $500 (or a lower amount specified in the plan). Any unused amount in excess of $500 (or a lower amount specified in the plan) that remains unused as of the end of the plan year (that is, at the end of the run-out period for the plan year) is forfeited. Any unused amount remaining in an employee's health FSA as of termination of employment also is forfeited (unless, if applicable, the employee elects COBRA continuation coverage with respect to the health FSA.)

Run-Out Period

A "run-out period" is a period immediately following the end of a plan year during which a participant can submit a claim for reimbursement of expenses incurred for qualified benefits during the plan year.  By contrast, a grace period is a period of up to two months and 15 days immediately following the end of a plan year during which a participant may use amounts remaining from the previous plan year (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during that two-month-and-15-day period.  (A run-out period may also be provided immediately following the end of a grace period instead of immediately following the end of a plan year, so that participants can submit claims for reimbursement of expenses incurred during the grace period or the previous plan year.)

If you want to amend your plan to permit participants to carryover 2013 deferrals into 2014, your plan must be amended by December 31, 2013, to incorporate the carryover provision.