Key Tax Provisions of “Fiscal Cliff” Legislation
You are probably aware that Congress passed legislation (the “American Taxpayer Relief Act”) early Wednesday morning, which the President is expected to sign into law to avert (or delay, depending on you viewpoint) the so-called “Fiscal Cliff.” While the legislation only delayed by two months widespread automatic spending cuts, it prevents many of the tax increases that were scheduled to take effect in 2013. With the exception of a targeted tax increase to the wealthiest Americans, the Act permanently extends provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and the Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 (JGTRRA). It also permanently addresses Congress’ reoccurring task of “patching” the alternative minimum tax (AMT). Further, it temporarily extends many other tax provisions that had lapsed at the end of 2012 and others that had expired a year earlier. Among the tax items not addressed by the Act was the so-called “payroll tax holiday.” Thus, the temporary 4.2% rate for the employees’ portion of the Social Security payroll tax will revert back to 6.2%, effective January 1, 2013.
Below is a summary of the key tax provisions: Continue reading »
Need cash? Don’t borrow from the IRS!
Many businesses and individuals are experiencing cash flow difficulties in today’s economy. To ease the cash crunch, it may be tempting to delay payment of taxes in the hope that finances will improve soon. Unlike other creditors, the IRS moves relatively slowly, lulling the taxpayer into complacency. During this time, interest and penalties accrue which, in some situations, can even exceed the original tax due. When the IRS decides to act, they often file liens, levies, and other garnishments that can cause significant and sometimes permanent economic damage. In addition to these civil penalties and collection actions, the IRS can pursue criminal charges. The failure to truthfully account for or turn over taxes is a felony, with the potential of up to five years of jail time. This applies to all taxes under the Internal Revenue Code – income tax, payroll tax, gift tax, and excise tax, to name a few. Continue reading »
Worker Classification: The New ‘Get Out of Audit Jail Free’ Card!
In recent years, the battle over how workers are classified has heated up. Federal and state government agencies have been going after businesses that intentionally or unintentionally classify their workers inaccurately as independent contractors when they should have been classified as employees. The resulting audits have proven to be very costly for companies that aren’t in compliance. Unfortunately this is something that has occurred frequently in the construction industry.
In a surprising move, the IRS recently announced the Voluntary Classification Settlement Program (VCSP), which will enable employers to address their worker classification noncompliance issues and resolve them with certainty at a relatively low tax cost. The VCSP does not add any clarity to existing laws, but rather provides a mechanism for employers to reclassify its workers prospectively without incurring substantial costs and without being subject to an audit.
To be eligible, an employer must meet these three criteria:
- The employer has treated all workers consistently – the individual has never been classified as an employee, and workers who hold a substantially similar position have also never been classified employees.
- The employer has filed a form 1099 for each misclassified worker for each of the past three years.
- The employer cannot be presently under examination by the IRS for any reason, and is not presently under examination by the Department of Labor or any state government agency with respect to the worker classification issue.
To be part of the VCSP, the employer must fill out form 8952 (Application for Voluntary Classification Settlement Program) at least 60 days prior to the date the employer wants to begin to reclassify the workers as employees. The IRS will then review the employer’s eligibility, and contact the employer to complete the process and enter into a closing agreement.
If accepted into the VCSP, the employer will then:
- prospectively treat the subject workers as employees;
- pay 10% of the employment tax liability that would have been due for the previous year as computed under Code Section 3509;
- not be liable for interest or penalties;
- not be subject to a federal employment tax audit for prior years on the classification of these workers; and
- agree to extend the employment tax statute of limitations from 3 years to 6 years for each of the first three calendar years beginning after the VCSP closing agreement.
Further information can be found on the IRS’ FAQ page, and we strongly advise you to contact your Aronson tax advisor at 301.231.6200 to help avoid the potentially costly consequences of trying to handle this matter on your own
