• Skip to content
  • Skip to primary sidebar

Header Right

  • Home
  • About
  • Contact

Worker Classification: Pay Attention

July 20, 2020 by Admin

Executive hands indicating where to sign contractIt isn’t easy deciding whether a worker should be treated as an employee or an independent contractor. But the IRS looks at the distinction closely.

Tax Obligations

For an employee, a business generally must withhold income and FICA (Social Security and Medicare) taxes from the employee’s pay and remit those taxes to the government. Additionally, the employer must pay FICA taxes for the employee (currently 7.65% of earnings up to $137,700).*

The business must also pay unemployment taxes for the worker. In contrast, for an independent contractor, a business is not required to withhold income or FICA taxes. The contractor is fully liable for his or her own self-employment taxes, and FICA and federal unemployment taxes do not apply.

Employees Versus Independent Contractors

To determine whether a worker is an independent contractor or employee, the IRS examines factors in three categories:

  • Behavioral control — the extent to which the business controls how the work is done, whether through instructions, training, or otherwise.
  • Financial control — the extent to which the worker has the ability to control the economic aspects of the job. Factors considered include the worker’s investment and whether he or she may realize a profit or loss.
  • Type of relationship — whether the worker’s services are essential to the business, the expected length of the relationship, and whether the business provides the worker with employee-type benefits, such as insurance, vacation pay, or sick pay, etc.

In certain cases where a taxpayer has a reasonable basis for treating an individual as a non-employee (such as a prior IRS ruling), non-employee treatment may be allowed regardless of the three-prong test.

If the proper classification is unclear, the business or the worker may obtain an official IRS determination by filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Year-End Statements

Generally, if a business has made payments of $600 or more to an independent contractor, it must file an information return (Form 1099-MISC) with the IRS and send a corresponding statement to the independent contractor.

Consequences of Misclassification

Where the employer misclassifies the employee as an independent contractor, the IRS may impose penalties for failure to deduct and withhold the employee’s income and/or FICA taxes. Penalties may be doubled if the employer also failed to file a Form 1099-MISC, though the lower penalty will apply if the failure was due to reasonable cause and not willful neglect.

Correcting Mistakes

Employers with misclassified workers may be able to correct their mistakes through the IRS’s Voluntary Classification Settlement Program (VCSP). For employers that meet the program’s eligibility requirements, the VCSP provides the following benefits:

  • Workers improperly classified as independent contractors are treated as employees going forward.
  • The employer pays 10% of the most recent tax year’s employment tax liability for the identified workers, determined under reduced rates (but no interest or penalties).
  • The government agrees not to raise the issue of the workers’ classification for prior years in an employment-tax audit.

Your tax advisor can help you sort through the IRS rules and fulfill your tax reporting obligations. *Internal Revenue Service. For 2020, the Social Security tax rate is 6.2% and is applied to earnings up to $137,700. The Medicare tax rate is 1.45% on the first $200,000 and 2.35% above $200,000.

We offer a FREE initial consultation for business owners in the Bakersfield area. Call us today at 661-323-1514 and ask for Ken regarding our accounting, tax, and planning services.

Filed Under: Business Tax

What To Know About Getting a Tax Refund

June 17, 2020 by Admin

Hardaway Axume Weir CPAsAll taxpayers are no doubt hoping for a refund this year. Unfortunately, there are a lot of myths about when and how you’ll get your refund.

In a recent statement, the IRS noted that most taxpayers are issued refunds by the IRS in fewer than 21 days. If yours takes a bit longer, here are six things that may be affecting the timing of your refund:

  • Security reviews – The IRS and its partners continue to strengthen security reviews to help protect against identity theft and refund fraud. Your tax return may be receiving additional review, which makes processing your refund take a bit longer.
  • Errors – It can take longer for the IRS to process a tax return that has errors. Fortunately, electronic filing has reduced the number of errors, which are more common in paper returns.
  • Incomplete returns – Here again, electronic returns make the most sense. It takes longer to process an incomplete return. The IRS contacts a taxpayer by mail when more info is needed to process the return.
  • Earned income tax credit or additional child tax credit – If you claim the earned income tax credit (EITC) or additional child tax credit (ACTC) before mid-February, the IRS cannot issue refunds as quickly as others. The law requires the IRS to hold the entire refund. This includes the portion of the refund not associated with EITC or ACTC.
  • Your bank or other financial institutions may not post your refund immediately – can take time for banks or other financial institutions to post a refund to a taxpayer’s account.
  • Refund checks by mail – It can take even longer for a taxpayer to receive a refund check by mail. Direct deposit is a better bet.

In an unusually poetic statement, the IRS explains that “tax returns, like snowflakes and thumbprints, are unique and individual. So too, is each taxpayer’s refund.” So keep this in mind. Fortunately, you can track your refund status online by entering your Social Security number and other key information.

Filed Under: Business Tax

Social Security: Note the Key Changes for 2020

May 19, 2020 by Admin

Hardaway Axume Weir CPAsThe Social Security Administration has released new numbers for those paying Social Security and those collecting it. Check out the new maximum taxable earnings amount as well as COLA and other key adjustments.

Every year, the Social Security Administration takes a fresh look at its numbers and typically makes adjustments. Here are the basics for 2020 — what has changed, and what hasn’t.

First, the basic percentages have not changed:

  • Employees and employers continue to pay 7.65% each, with the self-employed paying both halves.
  • The Medicare portion remains 1.45% on all earnings, with high earners continuing to pay an additional 0.9% in Medicare taxes.
  • The Social Security portion (OASDI) remains 6.20% on earnings up to the applicable taxable maximum amount — and that’s what’s changing:

Starting in 2020, the maximum taxable amount is $137,700, up from the 2019 maximum of $132,900. This actually affects relatively few workers; the Society for Human Resource Management notes in an article that only about 6% of employees earn more than the current taxable maximum.

Also changing is the retirement earnings test exempt amount. Those who have not yet reached normal retirement age but are collecting benefits will find the SSA withholding $1 in benefits for every $2 in earnings above a certain limit. That limit is $17,640 per year for 2019 and will be $18,240 for 2020. (See the SSA for additional information on how this works.)

Cost-of-living adjustments

Those collecting Social Security will see a slight increase in their checks: Social Security and Supplemental Security Income beneficiaries will receive a 1.6% COLA for 2020. This is based on the increase in the consumer price index from the third quarter of 2018 through the third quarter of 2019, according to the SSA.

A detailed fact sheet about the changes is available on the SSA site.

Filed Under: Business Tax

4 Areas to Consider When Transitioning Employees to Working From Home

April 15, 2020 by Admin

working from homeFor businesses that haven’t traditionally embraced remote employees, it may be difficult to get up to full speed with the current turn of events.  To make the inevitable transition less overwhelming, we assembled a handy checklist of actions to consider while adjusting to the new workplace reality.

Organization

  • Access your staff members and/or roles that are able to work remotely, those that can’t work remotely, and those where remote work may be possible with some modifications.
  • Conduct an employee survey to determine the availability of computers that can be used for working remotely, as well as availability to high-speed internet access.
  • Create company guidelines covering remote employees, including inappropriate use of company assets and security guidelines.
  • Develop and conduct work-at-home- training for using remote access, remote tools, and best practices.
  • Select a video-conferencing platform for services, such as Zoom, Cisco WebEx, or Go To Meeting.
  • Develop a communications plan to involve remote employees in the daily activities of the organization.

 Security

  • Create and implement a company security policy that applies to remote employees, including actions such as locking computers when not in use.
  • Implement two-factor authentication for highly-sensitive portals.
  • If needed, confirm all remote employees have access to and can use a business-grade VPN, and that you have enough licenses for all employees working remotely.

Staff

  • Institute a transparency policy with your staff and communicate frequently.
  • Check in on your staff, daily if possible, to confirm they are comfortable with working from home. Find and address any problems they may be experiencing.
  • Make certain each staff member has reliable voice communications, even if this results in adding a business-quality voice over IP service.
  • Don’t attempt to micro-manage your staff. Remember their working conditions at home won’t be ideal, and they will need to work out their own work patterns and schedules.
  • Create a phone number and email address where staff members can communicate their concerns about the firm, working at home, or even the status of COVID-19.

Infrastructure

  • Ensure that you have ample bandwidth coming in to your company to handle all of the new remote traffic.
  • Make sure you have backups of your services so your staff is able to keep working in the event extra traffic causes your primary service to go down.

You may need to adjust or expand this list to match the specific needs of your firm and the conditions affecting your organization.  Use this list to get you started and to help guide you through the process.

We offer a FREE initial consultation for business owners in the Bakersfield area. Call us today at 661-323-1514 and ask for Ken regarding our accounting, tax, and planning services.

Filed Under: Business Best Practices

Which Benefits Should You Offer Your Employees?

March 18, 2020 by Admin

Hardaway Axume Weir CPAs - Employee Benefits In a recent study, 77% of workers said that the benefits package an employer offers is extremely or very important in their decision to accept or reject a job.*

If benefits are that important to your employees, they are critical to your bottom line. You know that attracting and retaining top-notch employees generally translates into growing and retaining business. That’s why your financial professional is an important ally.

The Right Stuff

Benefits don’t fit neatly into a one-size-fits-all approach. The best benefits package is one that meets the needs of workforce force. Your financial professional can help design the right benefits package to fit your budget.

Bring in a Pro

Use the upcoming open enrollment season to showcase your benefits and their value — and to engage your employees so they make informed decisions. Make it a goal to achieve 100% participation in your 401(k) plan, meaning that all employees make all their benefit elections (keep in mind that waiving coverage is an election).

Keep it Simple

One reason employees may not be participating is that they don’t understand their options. You can remove that roadblock by providing easy-to-understand materials in a variety of ways (such as one-on-one and group meetings, benefit fairs, enrollment kits and intranet and online tools). Your financial professional will be happy to help with your communication strategy.

If your benefits package is changing this year, highlight the differences and be candid with your employees about why changes are being made. Be prepared for questions. And allow plenty of time for your employees to consider their options. (Three weeks is generally thought to be a reasonable length of time.)

Plan a 401(k) Day

Yes, there really is a 401(k) Day. Originally, it was observed the Friday following Labor Day. These days, employers decide when and how to celebrate the popular retirement plan. Since open enrollment period is all about benefits, why not publicize the benefits of your 401(k) retirement plan at the same time.

Whether you need individual or business tax advice, give us a call. We’ve got the answers you’re looking for, so don’t wait. Call us today.

* ebri.org Notes, Vol. 36, No. 11, November 2015

Give us a call at 661-323-1514 today to learn more, or request a free initial consultation online.

Filed Under: Business Best Practices

Getting Ready for Payroll in QuickBooks Online

February 19, 2020 by Admin

Hardaway Axume Weir CPAs - QuickBooks PayrollTaking on your company’s payroll with QuickBooks Online? Knowing what you’re up against ahead of time will make your setup tasks much easier.

 

Payroll is probably the most complex element of small business accounting. Not only are you directly responsible to your employees, but you also have to make sure you’re handling everything related to benefits and payroll taxes correctly.

Whether you’re switching from a manual system to QuickBooks Online, or you’ve just hired your first employee, you’ll soon discover that the site can make your payroll-related tasks much more organized and accurate – speeding up the process tremendously.

But before you start getting ready for your first payroll run, you have a lot of setup work to be done. Be sure to leave yourself time before those first paychecks are expected.

 

Our Purpose Here

We’ll provide some step-by-step instruction, but initially, we just want you to see what information you’ll need to have available and how QuickBooks Online handles it. This is not meant to be a payroll setup tutorial.

 

Building a Backbone

There’s no particular order set in stone for your payroll preparation tasks, although you will need to provide some background information about your company and its policies before you can start creating employee records.

QuickBooks Online doesn’t walk you through the steps required. It does though display a page with links to all of the data you’ll have to enter. Click the gear icon in the upper right, and then click Payroll Settings. You’ll see this screen:


QuickBooks Online’s Payroll Settings screen displays links to the pages where you’ll manage your setup tasks.

You would have entered information about your Contact Information and Work Locations (under the Business Information heading) when you first signed on to QuickBooks Online. At the same time, you would have been exposed to the Chart of Accounts, which already has accounts designated for payroll. You can see them by clicking Preferences | Accounting, but please do not customize these. If modifications are needed, we’ll do them for you.

 

Payroll Policies

How often will you pay your employees? Go up to the Payroll heading in the upper left and click on Pay Schedules. Click Create and open the drop-down list next to Pay Period to select the frequency desired. Then enter the date for the first payroll you’ll run in QuickBooks Online and the end date for the period that it covers. Click the box below if you want this to be the default setting for all employees. Then click OK to return to the previous page.

Open the Vacation and Sick Leave Policies window. If you don’t yet have accrual rules for these paid days off, let us help you here. It’s complicated. When you’re done, click the back arrow to return to the Pay Policies window and select Deductions/Contributions. Are you offering benefits like health insurance? You’ll need to have your paperwork and information handy before you start completing this section.


Before you can pay employees, you’ll need to have entered information about the benefits you offer so you can withhold dollars for them.

Click the plus sign (+) in front of Add a New Deduction/Contribution and complete the fields here, then click OK. You’ll assign these deductions to employees on their individual records in QuickBooks Online. If there are any Employee Garnishments needed (like child support), click the down arrow next to Add Garnishment for and select the worker from the list. You’ll provide details for these in the window that opens. This information was most likely provided to you by the agency requesting it. When you’re done, click OK.

 

Taxes and More

If you’re new to payroll and have never dealt with payroll taxes before, you’re going to need our help getting this complicated element set up correctly. Even if you have, we’d recommend that you let us work with you. QuickBooks Online does a good job of providing guidance here, but failure to submit payroll taxes (or pay them incorrectly) can lead to penalties and fines – or worse.

There are other setup tasks you’ll need to complete, like:

  • Connecting your payroll bank account to QuickBooks Online.
  • Creating employee records.
  • Setting payroll production preferences.

Setup is by far the most challenging part of processing payroll in QuickBooks Online. Once that’s done, you’ll just be entering hours and making modifications. Please do connect with us if you’re planning to take this on, and we’ll make sure you get a good start.

Social media posts

  • Are you using a payroll service or doing payroll manually? Consider letting QuickBooks Online taking over this task.
  • QuickBooks Online contains links to your payroll setup tasks, but it doesn’t walk you through the process. Let us.
  • Hiring your first employee? Talk to us about managing your payroll in QuickBooks Online.
  • Are you offering vacation and sick time leave to your employees for the first time? We can help you set up accrual rules.

Your time is valuable and accounting software is not your specialty. That’s why we provide training, oversight, and ongoing support. Call us at 661-323-1514 and ask for Ken to discuss your specific needs.

Filed Under: Quickbooks

  • « Previous Page
  • Page 1
  • Page 2
  • Page 3
  • Page 4
  • Page 5
  • Next Page »

Primary Sidebar

Search

Archive

  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018

Category

  • Business Best Practices
  • Business Tax
  • Individual Tax
  • Quickbooks
  • Real Estate

Copyright © 2020 · https://www.bakersfield-cpa.com/blog