Wondering if you have all the right tax information for this quarter? Here are some helpful tips to make sure you’re compliant with the IRS.
Self-employed: Tax withholding estimator enhancements
The IRS website now offers a Tax Withholding Estimator tool designed to help self-employed taxpayers determine the right amount of tax to be taken out of their pay. It will also let taxpayers know if they qualify for special tax benefits, including the self-employment health insurance deduction or the deduction for other qualified retirement plans.
Checking your withholding can help you avoid an unexpected tax bill or allow you to adjust your withholding to receive more in your paychecks throughout the year.
Beware of IRS impersonation scam
IRS imposters are sending fake "reminder" emails to taxpayers claiming to be about tax accounts, refunds and electronic returns. The emails contain malicious files that are labelled as "temporary password" or "one-time password" in order to trick people into clicking them and infecting their computers with malware that is used to steal passwords and other sensitive information.
Remember, the IRS won't initiate contact with you by email, text messages or on social media about personal or financial information. If you get an unsolicited email from what appears to be the IRS, report it by sending it to phishing@irs.gov
No change to fourth-quarter interest rates
The fourth-quarter interest rates are the same as the third quarter. Overpayments are 5 percent for individuals and 4 percent for corporations. Corporate overpayments exceeding $10,000 have a 2.5 percent interest rate. The rate charged on underpayments is 5 percent. And large corporate underpayments are charged 7 percent.
Employee or contractor: Know the difference!
Are some of your workers independent contractors instead of employees?
Correctly classifying your workers will preserve the tax breaks that come with hiring independent contractors - and help you avoid major penalties.
Why it matters
Employers are required to withhold taxes for employees and pay the employer's share of payroll taxes on wages. These amounts are reported to the IRS, as well as state tax authorities. An employer may also be liable for fringe benefits, like health insurance and matching 401 (k) contributions.
Conversely, an employer doesn't have to withhold or pay taxes on behalf of independent contractors. These workers take care of taxes, insurance and other benefits on their own. This is why the IRS pays special attention to how workers are classified.
Control is key
Generally, the issue boils down to control. If an employer maintains behavioral and financial control over a worker, he or she should be treated as an employee. Independent contractors, on the other hand, have a high level of autonomy and independence over the work being performed.
Avoid misclassification
The stakes are high. If the IRS discovers a misclassification, it will assess back taxes for the tax years in question, plus interest and penalties. For an intentional error, criminal sanctions may be imposed.
Here's what you can do to avoid the IRS challenging an independent contractor classification:
Understand the tax rules.
If you exercise a great deal of control over workers, they are likely to be considered employees.
Be specific.
Spell out the services to be performed by independent contractors, their responsibilities and the expectations in a written contract.
Keep work schedules flexible.
Avoid setting a regular work schedule for independent contractors. Allow them the ability to set their own hours.
Maintain separate payment practices.
Compensate independent contractors on a per-job basis. If possible, avoid paying a regular amount each payroll period.
Review work arrangements periodically.
Request invoices from independent contractors before payments are made.
Be careful with benefits.
Don't cover independent contractors under a health insurance plan or provide other fringe benefits that are typically given to employees.
An employer that has experienced misclassification issues may qualify for tax penalty relief if it can establish it has a reasonable basis for treating workers as independent contractors. Back taxes and penalties may be waived if the employer has been consistent in its treatment.