Payroll Forum

1. Payroll Forum Payroll Compliance Group August 5, 2014

2. PAYROLL COMPLIANCE GROUP (PCG) • Debra Cormier – State Payroll Compliance Administrator • Debra.Cormier@state.de.us • 302-672-5543 • Statewide Payroll Regulatory Compliance • Payroll Policies • Debbie (Hurd) Ide – Payroll Compliance Office • Deborah.Ide@state.de.us • 302-672-5506 • Payroll Planner • Internal Control Plans • Payroll Administration Training Delivery • Micheale Lessard– Payroll Compliance Analyst • Micheale.Lessard@state.de.us • 302-672-5517 • Payroll Authorizations • Wage Overpayments / Repayments • Wilmington City Wage Tax • Direct Deposit Participation • Funding Reconciliations

3. Agenda • Records Retention presented by Kit Carson, Delaware Public Archives • Survey Questions • Compliance Examination: Resident/Nonresident Aliens • Open Discussions: • Worker Classification • Wilmington City Wage Tax • On the Horizon

4. Delaware Public Archives Presented by Kit Carson • For more information and a copy of the presentation: • Contact Kit Carson • Rodney.carson@state.de.us • 302-744-5021 • http://archives.delaware.gov/govsvcs/govsvcs.shtml

5. Compliance Examination Resident vs. Nonresident Aliens

6. Resident and Nonresident AliensCompliance Examination • Resident and Nonresident Alien Employees Spreadsheet – Distributed 06/26/2014 • Responses Were Due On 07/21/2014 • 42% received To Date (Have you Submitted Yours Yet?)

7. The Clock is Ticking! If you have not already done so… Please complete your spreadsheets as soon as possible. PCG is reviewing tax setups for all alien employees and contacting Organizations to make necessary corrections in the PHRST system to ensure Calendar Year 2014 is reported accurately.

8. Payroll - The Buck Stops Here! Gets Collected • You don’t have to “know” all the rules… • You just have to know where to find them! • PCG Bulletin 2014-002 – Tax Treatment of Income Paid to Aliens • PCG Tax Residency Decision Tree • PCG Team • www.IRS.gov

9. Common Errors • J-1 Visa OASDI/Medicare Exemption • First Two Calendar Years – Incorrect Exempt Status • Continue Exempt Status after Two-Year Presence • Counting Years Incorrectly • Nonresident Alien – Invalid W-4s • May Only Claim Single or Married Filing Separately • May Only Claim Zero or One Allowance • Substantial Presence Test • Days of Presence in the U.S. vs. Working Days

10. Common Errors • Income Tax Treaties: • No Federal Income Tax (FIT) Exemption Unless a Tax Treaty Exists. • FIT Tax Treaty Terms Vary From Country to Country. • Years of FIT Exemption Differ from OASDI/Medicare Exemption. • Failure to Enforce Earnings Limitation (F-1 Visa). • Failure to Maintain Records That Substantiate Tax Setup.

13. OPEN DISCUSSION Worker Classification

14. Worker Classification • Organizations Periodically Hire Workers as Independent Contractors. • Circumstances of the Engagement Dictate the Appropriate Worker Classification.

15. Regulatory Agencies • Congress and the IRS believe that the use of independent contractors has led to an ever-widening “tax-gap” in lost payroll tax revenues from misclassified workers. • The U.S. Department of Labor is considering a survey to explore the extent and nature of independent contractor misclassification as part of its ongoing misclassification initiative. • IRS receives employment tax referrals from agencies administering workman’s compensation & unemployment.

16. Employees Individuals perform services for your Organization; and, someone at your Organization controls what is done AND how it is done. (Treas. Reg 31.3121(d)-1(c)(1))

17. Control It does not matter if an employer exercises the right to control how and when the work is done; it only matters that the employer has the right to control it.

18. Independent Contractor Employers/Payers have the right to control or direct only the result of the work done, not the means and methods of accomplishing the result.

19. Where’s The Harm? • IRS loses millions of dollars in uncollected income, Social Security, and Medicare taxes because of misclassification of independent contractors. • Employers are generally subject to imposition of fines and penalties, and are liable for back-taxes. • Misclassified Workers lose work credits used to calculate social security and pension benefits. • Misclassified Workers are not eligible for health benefits (Affordable Care Act implications). • Misclassified Workers are not eligible for unemployment benefits.

21. Correct Classification • Look at the entire picture. • There is no magic number of factors that make the determination. • No one factor can stand alone. • Some factors may be relevant in one scenario but not relevant in another. • Document each of the factors you used to come up with the determination.

22. Payroll - The Buck Stops Here! Gets Collected • You don’t have to “know” all the rules… • You just have to know where to find them! • PCG Bulletin 2014-003 – Worker Classification • Worker Classification Decision Tool • PCG Team • Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (IRS Form)

23. OPEN DISCUSSION Wilmington City Wage Tax

24. Wilmington City Wage Tax • State Employees pay $3,400,000 WCWT annually. • DOA receives an Annual Tax Bill for Uncollected WCWT (Average $14,000). • PCG Reconciles the bill with the City.

25. Wilmington City Wage Tax • Employers who operate within the State of Delaware have a statutory responsibility to collect and remit earned income tax to the City of Wilmington (City). • Failure to collect and remit the tax to the City subjects the employer to joint liability for the tax, as well as all accrued penalties, interest and other charges.

26. Wilmington City Wage Tax • Who is subject to the earned income tax? • All residents of the City (as per Address Coding Guide). Tax is payable on all earned income, regardless of where it was earned. • Any person who works in the City, and earns wages, regardless of where they live. • Earned income tax is calculated as 1.25% taxable gross wages (reduced by pre-tax deductions, and increased by imputed income).

27. Wilmington City Wage Tax • Important: • Tax set up in PHRST must be correct. • Address and Work Location changes must be entered timely. • Employee Self Service – Monitor address changes that affect the tax setup in PHRST. • PCG monitors employee records with mismatched data.

28. Wilmington City Wage Tax • Untimely updates result in under/over taxation. • Correcting the employee tax record involves: • Determining the affected pay period(s) • Submitting PHRST Correction Form One-Time General Deduction Refund/Adjustment. • PCG reviews Correction Form and forwards to PHRST. • PHRST corrects WCWT taxable gross and adjusts tax as appropriate on Payline.

29. Payroll - The Buck StopsHere! Gets Collected • These rules are pretty simple… • Toughest part is determining if an address is taxable: • City of Wilmington Taxpayer Advisory • City of Wilmington Address Coding Guide http://www.ci.wilmington.de.us/docs/37/EIT_flyer.pdf • PHRST Proc. PRU-TAX-01 – Update Employee Tax Data • PCG Team

30. Questions

31. On the Horizon…. • Reminders Coming Soon! • Internal Control Plan Submission • Resident/Nonresident Alien Worksheet Submission • Payroll Repayment Workshop • Next Forum: Late Fall 2014