The IRS Addresses the Employee vs. Independent Contractor Worker Subject

The Internal Revenue Service (IRS) released issue IR-2021-186, reminding business owners to be judicious when determining whether individuals providing services are employees or independent contractors.  

Employees are generally considered to be people who perform services for their organization if the business controls and has the right to control what will be done as well as how and when it will be done.  

On the other hand, independent contractors are generally people working in an independent trade, business, or profession in which they offer their services to the public. Examples would be doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers are generally classified as independent contractors.

Income for independent contractors is reported on Form 1099-NEC, while income for employees is reported on Form W-2.   The IRS offers guidance in the following chart to help determine the appropriate employment status.    

Independent contractor vs. employee
Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to examine:

  • Behavioral Control − does the company control or have the right to control what the worker does and how the worker does the job?
  • Financial Control − does the business direct or control the financial and business aspects of the worker’s job? Are the business aspects of the worker’s job controlled by the payer? (Things like how the worker is paid if expenses are reimbursed, who provides tools/supplies, etc.)
  • Relationship of the Parties − are there written contracts or employee type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

The IRS warns that misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. When a business misclassifies an employee without a reasonable basis, it could potentially be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors have recourse.  They can use IRS Form 8919, Uncollected Social Security and Medicare Tax on Wages (.pdf) to figure and report their share of uncollected Social Security and Medicare taxes that could potentially be due on their compensation.

SPS/GZ would be honored to be your organization’s trusted partner and assist with all of your Form 1099 processing and e-filing requirements. Saving time and money, while having peace of mind is critical today.  Knowing that certified and experienced professionals will provide support and advice for complex issues is key. 

For the Form 1099, which is required for reporting Nonemployee Compensation Income (formerly Box 7 of Form 1099-MISC), the Internal Revenue Service requires companies to e-file if issuing 250 or more 1099 forms by January 31st, making outsourcing a must for most organizations.  Form 1099-NEC is not part of the Combined Federal/State Filing Program (“CF/SF”), meaning that individual state filings are also required for some states. The SPS/GZ 1099 processing solution allows for easy form creation, 1099 e-filing, and seamless form amendments without the need to buy and manage software. SPS/GZ also provides filing-only services with the IRS or individual states for any form type.  SPS/GZ prides itself on providing top-notch services with a pricing structure that is flexible and reasonable.

SPS/GZ continues to stay abreast of new IRS and state requirements from year to year. In addition to 1099 forms, SPS/GZ creates and e-files Affordable Care Act tax forms, Forms 3921 and 3922, and Form 1042-S.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

National Preparedness Month, Week 4 September 19-25: Teach Youth About Preparedness

Talk to your children about preparing for emergencies and what to do in case you are separated. Reassure them by providing information about how they can be involved.  Have a meeting place set up in advance. Teach them their full names, your names, address, phone numbers and when it is appropriate to call 911 at appropriate ages.  When they are able to be responsible for their own “Go Bag” kit, have them help fill their own backpacks or bag that will be used when evacuation is necessary.  Contents should be based on unique needs and the latest recommendations by the Centers for Disease Control and FEMA.

This ends the National Preparedness Month series. SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

National Preparedness Month, Week 3 September 12-18: Low-Cost, No-Cost Preparedness

Natural disasters don’t wait for a convenient time. Preparing for them shouldn’t wait either. Start today by signing up for alerts, safe-guarding important documents, and taking other low cost and no cost preparedness actions to lessen the impact of disasters and emergencies for you and your family. Pack a bag for each member of your household, including pets, based on the latest recommendations by the Centers for Disease Control and FEMA.

SPS/GZ will post weekly topics during the National Preparedness Month. SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

National Preparedness Month, Week 2 September 5-11: Build A Kit

The National Preparedness Month’s focus this week is to remind Americans to gather water and other supplies for everyone living in your home in a Go-Bag kit!  Add items to last for several days after a disaster hits. You need to consider the unique needs of each person and pet in case you have to evacuate quickly. Update your kits and supplies based on the latest recommendations by the Centers for Disease Control and FEMA. Don’t delay- take the time now while you have it.  Often, you may only have a few minutes to gather your belongings.  

SPS/GZ will post weekly topics during the National Preparedness Month. SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

September 2021 – Annual National Preparedness Month

The 2021 theme is “Prepare to Protect. Preparing for disasters is protecting everyone you love.”  Raising awareness about the importance of preparing for disasters and emergencies at any time is the goal of Ready.gov’s National Preparedness Month (NPM) each September.  Businesses and citizens alike need to prepare for the likes of: 

  • Natural hazards like floods, hurricanes, tornadoes, and earthquakes.
  • Health hazards such as widespread and serious illnesses like the flu.
  • Human-caused hazards including accidents and acts of violence.
  • Technology-related hazards like power outages and equipment failure.

One way to prepare is to sign up for emergency alerts.  Wireless emergency alerts allow authorized federal, state, local, tribal, and territorial public alerting authorities, the National Weather Service, the National Center for Missing and Exploited Children and the President of the United States to be broadcasted from cell towers to any WEA-enabled mobile device in a locally targeted area.  

Another way to prepare is to download or order free preparedness materials from FEMA.gov’s online ordering platform.  Use the information sheets to learn more about tips and best practices in preparing for, keeping safe during and how to respond to hazards and disasters. Businesses and citizens alike will also want to prepare for any disaster by safeguarding documents, office equipment, and other valuables. 

SPS/GZ will post weekly topics during the National Preparedness Month. SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

IRS and Treasury Provide Gross Receipts Safe Harbor for Employers Claiming the Employee Retention Credit

In Issue IR-2021-67, the Internal Revenue Service (IRS) and the Department of the Treasury (Treasury) issue safe harbor guidance to qualified employers.  Paycheck Protection Program (PPP) forgiveness is addressed as well as certain business and restaurant revitalization grants that are permitted to be excluded from gross receipts for determining eligibility for the Employee Retention Credit. 

Safe harbor provisions are spelled out in Revenue Procedure 2021-33.  Permitted amounts follow:

  • The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan
  • Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act
  • Restaurant Revitalization Grants under the American Rescue Plan Act of 2021

Employers are not required to apply the safe harbor. Employers may elect to utilize a safe harbor by excluding certain amounts in determining whether they qualify for eligibility in calendar quarters for purposes of claiming the ERC on its employment tax return. The safe harbor does not however, permit the exclusion of these amounts from gross receipts for any other federal tax purpose.  The employer claiming a credit must apply the safe harbor to all employers treated as a single employer under the aggregation rules.

The most popular way that employers claim the ERC on their employment tax return, is by generally using Form 941, Employers Quarterly Federal Tax Return, or via adjusted employment tax return, Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

SPS/GZ will continue to closely monitor pending legislation related to the ERC.  Check back for additional information as updates will be made available. SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

Businesses, Charities, and Others Must Update Responsible Party Information Within 60 Days With the IRS

In IR-2021-161, released on July 30, 2021, the IRS is urging entities with Employer Identification Numbers (EINs) to update their on-file information if any changes in responsible party or contact information have transpired.      

Regulations require EIN holders to file a Change of Address or Responsible Party, Form 8822-B, with the IRS to make updates within 60 days.  It is critical that the IRS has accurate information in case of identity theft or other fraud-related issues.  

The IRS has begun to send letters to approximately 100,000 businesses, charities, partnerships, trusts, and estates where it appears the responsible party is outdated.  The IRS defines “responsible party” as the individual or entity who “controls, manages, or directs the applicant entity and the disposition of its funds and assets.”  Unless an applicant is a government entity, the responsible party must be an individual, not an entity. If there is more than one responsible party, the entity must list whichever party the entity wishes the IRS will recognize as the responsible party.

If you are looking to outsource your company’s tax form reporting services in TY2021 (including Forms 1099, 1098, 1042-S, 3921, 3922 and all Affordable Care Act forms), reach out today to schedule a demo of our system.  SPS/GZ provides complimentary TIN Matching service for our clients in advance of filing with the IRS.  Taxpayer’s Name and Tax ID Number (either the Social Security Number or the Employer Identification Number) is checked against IRS records to minimize filing errors.  Our user-friendly system allows clients to autonomously change any information or amounts in form fields by simply logging into our secure portal. SPS/GZ’s platform tracks all changes, providing an audit trail, and corrections are automatically e-filed with the IRS, so you don’t need to worry about amending forms that were previously filed. We do not charge any extra fees for the correction service unless a special data project is requested.  This process, including the 1099 e-file service for amendments, has helped many clients avoid or limit penalties imposed by the IRS.

SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

IRS “‘Dirty Dozen” List Series Wrap Up- Warning Issued About Abusive Arrangements

In the final segment of the “Dirty Dozen” List scheme and scam series, the IRS concludes with a warning to American taxpayers to watch out for scams and schemes by unscrupulous promoters who aggressively peddle false hopes with false claims while charging exorbitant fees.    

The IRS has recently created the Office of Promoter Investigations (OPI) to focus on both participants and promoters of abusive tax avoidance transactions. The OPI coordinates service-wide enforcement activities. A word to the wise- the best defense for any taxpayer who is approached by a new promoter is to show caution: if it sounds too good to be true, it probably is.  

These aggressively marketed abusive tax avoidance “deals” are broken down into the following categories:  

  • Syndicated conservation easements- Abusive arrangements are designed to game the system and generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business.
  • Abusive micro-captive arrangements- Scamming promoters, accountants, or wealth planners have been known to unlawfully persuade owners of closely-held entities to participate in schemes that lack many of the attributes of insurance, are often excessive and are being used to skirt tax laws in offshore captive insurance companies domiciled in Puerto Rico, Malta, and elsewhere. 
  • Improper claims of business credits- Improper claims for the research and experimentation credit generally involve failures to participate in, or substantiate, qualified research activities and/or satisfy the requirements related to qualified research expenses. To claim a research credit, taxpayers must adequately evaluate and appropriately document research activities over a certain period of time to establish the amount of qualified research expenses 
  • Improper monetized installment sales- Promoters find taxpayers seeking to defer the recognition of gain upon the sale of appreciated property and organize an abusive shelter through selling them monetized installment sales. These transactions occur when an intermediary purchases appreciated property from a seller in exchange for an installment note, which typically provides for payments of interest only, with principal being paid at the end of the term. In these arrangements, the seller gets a lion’s share of the proceeds but improperly delays the gain recognition on the appreciated property until the final payment on the installment note, often slated for many years later.

The IRS continues to pursue actions against promoters of these schemes as well as the taxpayers who participate in them. “We are stepping up our enforcement against abusive arrangements,” said IRS Commissioner Chuck Rettig. “Don’t be lulled into these shady deals. The IRS recommends that anyone who participated in one of these abusive arrangements should consult independent counsel about coming into compliance.”

SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

IRS ‘Dirty Dozen’ List Continued- Senior Citizens and Immigrants Are Often Targeted

The IRS issues additional warnings and details regarding 2021 tax fraud schemes and scams.  Encouraging senior citizens and immigrants to beware of fake charities impersonating IRS authorities and imposters who often charge exorbitant fees for Offers in Compromise, Unemployment Compensation Insurance fraud, or tax form preparation.  

Tips to remember when approached by a fake charity follow:

  • Individuals should never let any caller pressure them. A legitimate charity will be happy to get a donation at any time, so there’s no rush. Donors are encouraged to take time to do the research.
  • Potential donors should ask the fundraiser for the charity’s exact name, web address and mailing address, so it can be confirmed later. Some dishonest telemarketers use names that sound like large well-known charities to confuse people.
  • Be careful how a donation is paid. Donors should not work with charities that ask them to pay by giving numbers from a gift card or by wiring money. That’s how scammers ask people to pay. It’s safest to pay by credit card or check — and only after having done some research on the charity.

Offer in Compromise mills contort IRS programs and mislead people with no chance of meeting requirements or lowering penalties while charging excessive fees, often thousands of dollars. American taxpayers need to be wary of anyone who claims they can obtain larger offer settlements than others or who make misleading promises that the IRS will accept an offer for a small percentage fee. Companies advertising on radio or TV frequently are not able to do anything for taxpayers that they can’t do for themselves.  Contact the IRS directly.

Tips to remember when dealing with unscrupulous tax return preparers follow: 

  • Require payment in cash only and will not provide a receipt.
  • Invent income to qualify their clients for tax credits.
  • Claim fake deductions to boost the size of the refund.
  • Direct refunds into their bank account, not the taxpayer’s account.

Tips to remember with unemployment fraud red flags follow:

  • Unemployment payments are coming from a state other than the state in which the customer reportedly resides or has previously worked.
  • Multiple state unemployment payments are made within the same disbursement timeframe.
  • Unemployment payments are made in the name of a person other than the account holder or in the names of multiple unemployment payment recipients.
  • Numerous deposits or electronic funds transfers (EFTs) are made that indicate they are unemployment payments from one or more states to people other than the account holder(s).
  • A higher amount of unemployment payments is seen in the same timeframe compared to similar customers and the amount they received.

While a high percentage of tax preparers are honorable, ethical, and trustworthy, nefarious IRS impersonators and other tax preparation promoters are known to target vulnerable groups and are almost always threatening in nature. Those people who care about older Americans and immigrants need to also be on the alert for scams. An increased number of Americans have been known to receive telephone calls threatening penalties, jail time, deportation, or revocation of a driver’s license from someone claiming to be with the IRS. Recent immigrants should ignore these threats and not engage the scammers.  

SPS/GZ will continue to post Dirty Dozen List information as the IRS makes it available SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

IRS Issues E-mail, Social Media, and Phones Warnings – ‘Dirty Dozen’ Series Continues

In its continued “Dirty Dozen” scheme and scam series, Americans are being warned by the IRS to watch out for unexpected contact from unscrupulous individuals preying on taxpayers, businesses, and tax preparers through e-mails, text and social media messaging, or phone calls. If in doubt, don’t click, respond, or hang up.  

  • The IRS generally first contacts people by mail – not by phone – about unpaid taxes.
  • The IRS may attempt to reach individuals by telephone but will not insist on payment using an iTunes card, gift card, prepaid debit card, money order or wire transfer.
  • The IRS will never request personal or financial information by e-mail, text, or social media.

Con artists try to entice and convince recipients to disclose personal information using malicious software that captures, collects, or mines personal data to be used for nefarious purposes.  Links are often used to collect or mine personal data, such as Social Security Numbers, banking, or credit card information, and even passwords.  After gathering information online, criminals will pose as someone that the recipient knows or interacts with.  “Friends” or social media contacts are used to fool recipients into thinking that they are dealing with someone that they know. 

SPS/GZ has noticed posts on popular sites that pose to be innocent.  However, all too often, personal information is being furnished that can be used in scams.  Recent examples include name of the hospital you were born in, name of your best friend growing up, your first car, your first dog’s name, favorite drink, mountain or lake, favorite “anything”. The list goes on.  We recommend that you don’t fall prey by responding with answers that give away secret or security answers.

The IRS warns that phishing schemes are cleverly disguised to look like they are from legitimate sources such as a government agency or financial institution.  Cybercriminals usually send these phishing communications by cleverly disguising e-mail messages,  so be on guard with text or social media messaging.  Taxpayers should not open attachments or click on links that look like they are from the IRS or those promising big refunds, missing stimulus payments or threatening penalties.  

Tax professionals are not immune to these scams.  The IRS reminds tax professionals to protect themselves against scams from “new client” communications that contain attachments and those involving verification of the Electronic Filing Identification Numbers (EFIN) and Centralized Authorization File (CAF) numbers. An uptick in these kinds of scams have been seen by the IRS, along with offers to buy and sell EFINs and CAFs.  Tax professionals have reported receiving scam e-mails from the fictitious “IRS Tax E-Filing“.  Report all scams to the Treasury Inspector General for Tax Administration.

SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

IRS Is Dedicated to Stop Fraud. Issues Strong Warning in a 2021 “Dirty Dozen” List

The 2021 “Dirty Dozen” list warns of  “nefarious schemes and scams”.  Taxpayers, tax professionals, and financial institutions are urged to not only look to their own interests, but to safeguard vulnerable people close to them.  

This year’s list is divided into four categories: 

  1. Pandemic-related scamslike Economic Impact Payment theft. 
  2. Personal information consincluding phishing, ransomware, and phone ‘vishing’. 
  3. Ruses focusing on unsuspecting victimslike fake charities and senior/immigrant fraud. 
  4. Schemes that persuade taxpayers into unscrupulous actionssuch as Offer In Compromise mills and syndicated conservation easement.

“We continue to see scam artists use the pandemic to steal money and information from honest taxpayers in a time of crisis,” said IRS Commissioner Chuck Rettig. “We provide this list to alert taxpayers about common scams that fraudsters use against their victims. At the IRS, we are dedicated to stopping these criminals, but it’s up to all of us to remain vigilant to protect ourselves and our families.”

SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  A breakdown of each category will be shared in future blog articles. Reach out today at sales@greenzapato.com or call at (888)375-3049. 

2021 IRS “Dirty Dozen” Tax Scam List

The IRS announced that the 2021 “Dirty Dozen” Tax Scam List will be detailed in a four-part series.  The IRS is encouraging all taxpayers to be extra vigilant this year, as 2021 is expected to be a peak “season” for schemers and scammers. 

This year’s “Dirty Dozen” will be separated into the following categories:

  • Pandemic-related scams- Economic Impact Payment theft example.
  • Personal information cons including phishing, ransomware, and phone ‘vishing’.
  • Ruses focusing on unsuspecting victims like fake charities and senior citizen or immigrant fraud scenarios.
  • Schemes that promote abusive structures – like syndicated conservation easements.

SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049. 

Stock Plan Solutions/Green Zapato Celebrates Its 20th Anniversary

Stock Plan Solutions/Green Zapato (“SPS/GZ”) announced its 20th anniversary as a national, comprehensive stock plan and tax form reporting firm. SPS/GZ was formed as a merger of two firms, Stock Plan Solutions and Green Zapato Consulting, with the desire to offer the best-of-breed stock plan administration, accounting, and financial reporting services of both legacy firms. SPS/GZ has been continuously finding ways to meet the needs of its clients.  In 2010, when the IRS adopted IRC 6039 for reporting income related to certain equity compensation awards, SPS/GZ developed a leading-edge, secure portal, spsgzXchange, to offer a reliable tax reporting service to clients.  Satisfied clients began requesting assistance with other tax form reporting needs, such as Forms 1099 and the tax forms required under the Affordable Care Act. So, SPS/GZ expanded to become a full-service tax reporting provider.

From its inception in 2001, SPS/GZ has partnered with E*TRADE Financial Corporate Services to offer clients the best-in-class platform for managing the complexities of their equity compensation programs.  Clients of all sizes, both public and private, benefit from the deep expertise of SPS/GZ’s certified professionals.  The combination of robust technology with exceptional client service has made SPS/GZ a market leader in third-party stock plan administration services.

“Rick Zatz and I take great pride in what we’ve been able to accomplish over the past 20 years,” said Mary Pat Wood, Co-Founder and Principal.  “We consider all of our clients as friends and value the relationships we develop with them. Hitting the 20-year mark reflects the commitment that SPS/GZ has shown to its clients over the past two decades.  We are fortunate to not only have experienced continued year-over-year growth, but also to have maintained client loyalty that has generated multiple referrals throughout the years.”

Over the past 11 years, SPS/GZ has grown its tax form reporting segment to include nearly all information returns required by the IRS. Its solution includes a user-friendly corrections portal that interfaces with the IRS and knowledgeable professionals supporting the entire process, from form creation to printing, mailing, and e-filing with the IRS. A client recently remarked, “We really aren’t used to working with organizations who provide the level of customer service that you’ve provided throughout this process.”  SPS/GZ thinks this sums up the core value of its business model.

About SPS/GZ: 

Stock Plan Solutions/Green Zapato LLC (SPS/GZ), is a leading provider of stock plan outsourcing and tax form reporting solutions.  Our experienced professionals work closely with clients to ensure they are fully satisfied and compliant. For more information on SPS/GZ and our full-service solution, please contact us at (888) 375-3049 or visit our website, www.spsgz.com

ACA Affordability Threshold for 2021

Only a few months ago, there were hearings on what the future of the Affordable Care Act (“ACA”) would be and whether the legislation would be considered unconstitutional and struck down.  Although the Supreme Court decision on the fate of the ACA is not expected until late June, legal scholars summarize the November 2020 oral arguments as almost certainly in favor of keeping the ACA in place.  Additionally, as our country is dealing with a pandemic and the Biden administration is expanding access to affordable health insurance, we do not see ACA going anywhere.  

One of the significant components of ACA legislation is that health insurance is affordable. Under the Employer Mandate, Applicable Large Employers (“ALEs”) must offer full-time employees, and their dependents, affordable minimum essential coverage that provides minimum value. Every year the IRS adjusts the affordability percentage to determine if health insurance premiums are considered affordable under ACA regulations.  The affordability threshold for 2021 is 9.83%, which is a slight increase from the 2020 affordability rate of 9.78%.   

Employers need to take into account the cost to their employees for health coverage when determining the health plan options.   To avoid possible penalties, a company must offer single-only health insurance coverage that is below the affordability threshold.  To determine whether a plan is affordable, according to ACA regulations, the IRS has established three safe harbors to calculate if the employee contribution to obtain coverage is considered affordable.  

  1. W- 2 Wages Safe Harbor – To determine if insurance cost is affordable using the W-2 calculation, multiply the employee’s gross income by the affordability rate of 9.83% and divide by 12 to obtain the monthly cost the premium should not exceed (e.g., for gross income of $32,000 a year, the calculation would be:  ($32,000 x .0983)/12 = $262.13).  In this scenario, if the employer offers a plan to the employee that costs less than $262.13 per month for single-only coverage, the employer meets the affordability standard.
  2. Rate of Pay Safe Harbor –To determine if insurance cost is affordable using the hourly rate of pay calculation, multiply the employee’s hourly rate by 130 (130 is the minimum monthly hours an employee must work to be considered a full-time employee). Then multiply by the affordability rate of 9.83% (e.g., for an hourly pay rate of $15.00 an hour, the calculation would be: $15 x 130 X .0983 = $191.69).  In this scenario, if the employer offers a plan to the employee that costs less than $191.69 per month for single-only coverage, the employer meets the affordability standard.
  3. Federal Poverty Level Safe Harbor – To use the Federal Poverty Level (“FPL”) Safe Harbor to determine affordability, multiply the applicable  tax year’s FPL (for TY2020, the FPL is $12,760), by the affordability rate of 9.83% and divide by 12 (e.g., ($12,760 x .0983)/12 = $104.53). In this scenario, if the employer offers a plan to the employee that costs less than $104.53 per month for single-only coverage, the employer meets the affordability standard.

It is important to use the proper safe harbor to avoid the possibility of penalties.  When working with your broker to choose a health plan for your organization, you should determine the best option to measure affordability and meet the requirements of the ACA.   Now more than ever, it is prudent for ALEs to utilize certified professionals and robust solutions for their ACA reporting needs. Please contact SPS/GZ at sales @greenzapto.com with any questions you may have about ACA reporting or to learn more about our tailored solutions.

On What 1099 Form should Attorney’s Fees be Reported?

Form 1099 reporting is oftentimes straightforward, but there can be gray areas as to how to report certain payments and which form should be used.  SPS/GZ has had many clients ask, “Where should I report payments made to an attorney, Form 1099-NEC or Form 1099-MISC?”  Prior to 2020, attorney fees aggregating $600 or more were reported on Form 1099-MISC in Box 7, non-employee compensation.  In tax year 2020, the Internal Revenue Service resurrected Form 1099-NEC, which was discontinued in 1982, to replace Box 7 on the 1099-MISC form.  This change did cause some confusion since now many companies had to use two separate forms depending on the type of payments that were made.  When reporting attorney fees here are some things to consider

  • Generally, corporations including LLCs that are taxed as C or S corporations, do not need to receive a 1099 form.  However, attorney fees that are paid to a law firm that is incorporated are an exemption to this rule and should receive a 1099 form.
  • Attorney fees, over $600, that are paid as part of services they performed in the course of an entity’s trade or business should be reported on Form 1099-NEC in Box 1.
  • In contrast, gross proceeds paid to an attorney as part of a settlement agreement are reported on Form 1099-MISC in Box 10.
  • If an attorney makes a payment to a client as part of a settlement, the attorney would not need to report the payment on a 1099.  Actually, the defendant in the lawsuit would have the obligation to report the settlement payment to the client.

An example of gross proceeds paid to an attorney would be payments made by an insurance company, or other organization, in the full amount to an attorney to settle a claim.  In this case, the insurance company/organization would file two forms: a 1099-MISC reporting the amount paid to the attorney in Box 10 as part of a settlement and a 1099-MISC to the attorney’s client in the full amount of the settlement reported in Box 3. The attorney who received the settlement payment and paid the client directly for the settlement would not need to file a 1099 to report the payment.  

The major reason the IRS brought back the Form 1099-NEC was to alleviate confusion with the varying filing deadlines based on type of payments being reported on Form 1099-MISC.  Prior to 2020, the 1099-MISC had a different deadline for Box 1 payments, non-employee compensation, versus other payment types being reported on the same form.  Now the 1099-NEC form that reports non-employee compensation payments has a filing deadline of January 31st, while the other payment types being reported on Form 1099-MISC have a filing date of March 31st.  

It is important that companies and attorneys, know the rules for 1099 reporting to avoid costly penalties.  The IRS heavily audits these forms and are quick to issue penalties for forms that are filed incorrectly or late.  Now that the IRS has separate forms with specific filing deadlines, it will make it much easier for the IRS to track late filings and issue penalties.  The late filing penalty is $50 per form if you file within 30 days of the deadline.  After 30 days but before August 1st, the penalty increases to $110 per form.  After August 1st, the penalty is $270 per form.  If a company blatantly disregards their reporting requirement, a penalty of $560 per form penalty can be accessed. 

SPS/GZ is a full-service tax reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file Forms 1099, Affordable Care Act tax forms, and Forms 3921 and 3922.  Reach out today at sales@greenzapato.com or call at (888)375-3049.  

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