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The guidelines for employers regarding who they can or cannot classify as a W-2 employee or a 1099 Contractor have seen some changes in past years, but the latest court ruling means some dramatic changes are going to be taking place as businesses come into compliance with the new standard.  On April 30, 2018, the California Supreme Court passed down a ruling regarding the classification of W-2 employees and 1099 contractors which alters it yet again.  So listen up, as this may impact your business!

Previously there was a lengthy multi-factor test that an employer would use to determine if they had classified all of their 1099 contractors correctly or if they needed to re-classify them as W-2 employees.  Now the California Supreme Court is stating that employers need to use the ABC test.

The test established by the Court in California reads as follows:

“The [new] ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” – Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018)

This new standard makes California’s policy regarding independent contractors one of the most restrictive in the United States.

Employers who traditionally hire employees for short periods to help them get through their busy season but pay them as 1099 contractors will no longer be able to do so.  If you hire someone to perform the same work that your company already performs, even if it is for a shorter period of time, they will need to be hired and paid as any other W-2 employee.

This will mean increased costs for employers in many areas including, but not limited to, increased taxes through FICA, workers comp premiums, and in some cases health benefit premiums if the employees meet the eligibility criteria.  However, even with the potential increase in costs, the penalty for non-compliance with the new 1099 employee test could be much higher.

By Elizabeth Kay

On January 11, 2018, the Internal Revenue Service released its income tax withholding tables for 2018 reflecting changes made by the December 2017 tax reform legislation. The updated withholding information provides the new rates for employers to use during 2018. Employers are encouraged to use these tables as soon as possible but must use them by no later than February 15, 2018. Employers should continue to use the 2017 withholding tables until they implement the 2018 withholding tables.

According to the U.S. Treasury, an estimated 90 percent of paycheck recipients are likely to see an increase in their take-home pay by February. However, when employees see these changes in their paychecks depends on how quickly the new tables are implemented by their employers and how often they are paid (usually weekly, biweekly, or semimonthly).

To help individuals identify the correct amount of withholding, the IRS is releasing a revised withholding calculator by the end of February, which will be posted on IRS.gov. The IRS encourages taxpayers to use the calculator to adjust their withholding once it is released.

Changes for 2018 and Looking Forward

The new law makes many changes for 2018 that affect individual taxpayers, including an increase in the standard deduction, repeal of personal exemptions, and changes in tax rates and brackets. In relation to Form W-4, these new withholding tables are designed to work with employees’ current W-4, as filed with their employer; so, there are no steps employees must currently take regarding the new tables and law.

The IRS is also working on revising the Form W-4 to reflect the newly available itemized deductions, increases in the child tax credit, the new dependent credit, and repeal of dependent exemptions. However, there is no set release date for the revised form.

Once released, employees may use the new Form W-4 to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job. Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4.

For Now

At this time, employers should be reviewing these new tables and implementing necessary changes. For 2019, the IRS has said that it anticipates making even more changes involving withholding. But don’t despair; the agency provides FAQs, which employers and employee may find useful, and pledges to work with the business and payroll community to encourage workers to file new Forms W-4 next year while sharing information on changes in the new tax law that impact withholding.

Stay tuned though, because 2018 has only just begun.

Originally Published By ThinkHR.com

The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on Form W-2 does not mean that the coverage is taxable.

Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). Federally recognized Indian tribal governments are not subject to this requirement.

Employers that are subject to this requirement should report the value of the health care coverage in Box 12 of Form W-2, with Code DD to identify the amount. There is no reporting on Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. See the chart below from the IRS’ webpage and its questions and answers for more information.

The chart below illustrates the types of coverage that employers must report on Form W-2. Certain items are listed as “optional” based on transition relief provided by Notice 2012-9 (restating and clarifying Notice 2011-28). Future guidance may revise reporting requirements but will not be applicable until the tax year beginning at least six months after the date of issuance of such guidance.

  Form W-2, Box 12, Code DD
Coverage Type Report Do Not
Report
Optional
Major medical X    
Dental or vision plan not integrated into another medical or health plan     X
Dental or vision plan which gives the choice of declining or electing and paying an additional premium     X
Health flexible spending arrangement (FSA) funded solely by salary-reduction amounts   X  
Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits X    
Health reimbursement arrangement (HRA) contributions     X
Health savings account (HSA) contributions (employer or employee)   X  
Archer Medical Savings Account (Archer MSA) contributions (employer or employee)   X  
Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis   X  
Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer X    
Employee assistance plan (EAP) providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium   Optional if employer does not charge a COBRA premium
On-site medical clinics providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium   Optional if employer does not charge a COBRA premium
Wellness programs providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium   Optional if employer does not charge a COBRA premium
Multi-employer plans     X
Domestic partner coverage included in gross income X    
Governmental plans providing coverage primarily for members of the military and their families   X  
Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government   X  
Self-funded plans not subject to federal COBRA     X
Accident or disability income   X  
Long-term care   X  
Liability insurance   X  
Supplemental liability insurance   X  
Workers’ compensation   X  
Automobile medical payment insurance   X  
Credit-only insurance   X  
Excess reimbursement to highly compensated individual, included in gross income   X  
Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income   X  
Other situations Report Do Not
Report
Optional
Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers)     X
Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of the year     X
Forms W-2 provided by third-party sick-pay provider to employees of other employers     X

By Danielle Capilla
Originally Published By United Benefit Advisors

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