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Tax News

GA Amends Unemployment Compensation For Scope Of Employment

On May 2, 2022, Governor Brian Kemp signed a bill providing detailed guidance for Georgia employers regarding how to classify employees vs. independent contractors for purposes of contributions to unemployment. Specifically, HB 389 amends the definition of employment, stating that unless an exception applies, services performed by an individual for wages are deemed employment unless the individual is free from control or direction over performance of such services. The amendment provides the following factors for determining whether an individual is free from control or direction and whether the individual:

  • Is not prohibited from working for other companies or holding other employment contemporaneously;
  • Has the discretion to set their own work schedule;
  • Is free to accept or reject work assignments without consequence;
  • Is not prescribed minimum hours to work or, in the case of sales, does not have a minimum number of orders to be obtained;
  • Receives only minimum instructions and no direct oversight or supervision regarding the services to be performed, such as the location where the services are to be performed and any requested deadlines;
  • When applicable, has no territorial or geographic restrictions;
  • Is not required to perform, behave, or act or, alternatively, is compelled to perform, behave, or act in a manner related to the performance of services for wages which is determined by the Commissioner of Labor to demonstrate employment; and
  • Is customarily engaged in an independently established trade, occupation, profession, or business.

It is unclear whether all of the above-listed factors must be met in order for the individual to be considered an independent contractor, or whether the factors should be weighed in a balancing test. 

HB 389 also adds two exceptions to the definition of employment. First exempted from the definition are music industry professionals who provide services under a contract as long as that contract meets certain requirements. Additionally, to fit within the exception, the music industry professional must regularly exercise discretion and independent judgment in the performance of the services provided for in the contract.

The second exception relates to services performed or facilitated through a “network company” (defined as a rideshare network service or a business entity that maintains an online-enabled application or platform used to facilitate delivery services in Georgia). The exception applies when the network company has a written contract with the service provider that expressly provides that the network company shall not:

  • Unilaterally prescribe specific dates, times of day, or a minimum number of hours during which a service provider must be logged in to the application or platform;
  • Terminate such contract if the service provider does not accept, or require the service provider to accept, any specific transportation or delivery service request, although the company can require the service provider to accept a certain percentage of requests;
  • Restrict the service provider from performing the same services through other network companies, except at the same time; and
  • Restrict the service provider from working in any other lawful occupation or business.

Companies who misclassify employees as independent contractors, and therefore are not contributing to unemployment for those individuals, may receive a fine for such misclassification ranging from up to $2,500 (if the employer has under 100 employees) to $7,500 (if the employer has 100 or more employees) for each misclassified individual.

Classification of independent contractors is an important issue that can have consequences for employers under numerous laws and regulations, including under federal wage laws, tax laws, and, as here, state unemployment law. Although HB 389 is limited to the Georgia unemployment context and is generally consistent with other applicable standards, it is important for employers to be aware of this issue broadly and to ensure all workers are properly classified. As a practical matter, if an individual meets the definition of employee under any applicable legal standard, that person must be classified as an employee for all purposes. In addition, while consistent with the factors Georgia courts have previously considered when determining whether an individual is properly classified, HB 389 is notable as the Georgia legislature has now enumerated specific factors with respect to the control or direction inquiry.

Overall, the companies who are likely to feel the biggest impact from HB 389 are technology companies that meet the definition of a “network company” and engage workers in Georgia (for example, ride share or other delivery services). These companies may consider this exception a positive development for the industry, albeit in a relatively limited area. However, to benefit from the exception described above, such companies need to ensure any contracts and relationships they have with independent contractors in Georgia comply with the requirements of HB 389.

HB 389 took effect on July 1, 2022.

Standard Mileage Rate Changes July 1 2022

The IRS has changed the mileage rate midyear as a reaction to the spiking cost of fuel.  Be prepared to give us the mileage in each of the (2) periods listed below when we are preparing the tax returns.

 

The rates for travel from January 1-June 30, 2022 are:

- Business rate is 58.5 cents per mile (up from 56 for 2021).  The depreciation portion of this rate is 26 cents per mile (same as for 2021).

- Charitable rate is 14 cents per mile (same as for 2021).

- Medical and moving rate is 18 cents per mile (up from 16 for 2021).

 

The rates for travel on or after July 1, 2022 are::

- Business rate is 62.5 cents per mile.  The depreciation portion of this rate is still 26 cents per mile.

- Charitable rate is 14 cents per mile.

- Medical and moving rate is 22 cents per mile.

PPP Loan Forgiveness Required Disclosure

During December 2021 IRS released Revenue Procedures 2021-48 dealing with the timing options for treating a PPP loan forgiveness as income.

Revenue Procedure 2021-48, Section 3.01 which says a taxpayer can treat the PPP loan as forgiven –

1) When the expenses are paid/incurred,

2) When the application for PPP loan forgiveness is filed, or

3) When the PPP loan forgiveness actually takes place.

The Revenue Procedure also requires ALL taxpayers to attach a disclosure statement to the tax return for the year the PPP loan forgiveness is being reported as income (even though nontaxable).

 The statement is required to have (for each PPP loan):

1) “RP2021-48” at the top of the statement

2) The taxpayer’s name, address, and EIN/SSN.

3) Which of the above dates is being used (Section 3.01(1), (2), or (3)).

4) The year the taxpayer is treating this as forgiven.

5) The amount of the tax-exempt income.

6) Whether forgiveness of the PPP loan has been granted prior to the date the tax return is filed.

SAMPLE when treating a $10,000 loan as forgiven when it actually takes place (#3 above).

RP2021-48

99-9999999

FAKE TAXPAYER

100 MAIN STREET

ANY TOWN, USA  00000

THE TAXPAYER RECEIVED A PAYCHECK PROTECTION PROGRAM LOAN FOR THIS BUSINESS AND IS APPLYING SECTION 3.01(3) OF REVENUE PROCEDURE 2021-48 IN TAX YEAR 2021.

THE TAXPAYER IS TREATING $10,000 AS TAX-EXEMPT INCOME FROM THE FORGIVENESS OF THE PAYCHECK PROTECTION PROGRAM LOAN.  AS OF THE DATE THIS RETURN IS BEING FILED, THE PAYCHECK PROTECTION PROGRAM LOAN HAS BEEN FORGIVEN.

Contractors with no W-9 or TIN/SSN

James Quezada & Simona Quezada, CA-5, No 19-51000, December 11, 2020

Mr. Quezada did not get the TIN/SSN for contractors he paid. He either prepared a 1099 without the TIN/SSN or did not even prepare one at all over a period of 4 years of 2005-2008.

The IRS has the following in the IRS code. BACKUP WITHHOLDING – IRC Section 3405(a) addresses the backup withholding requirements by stating a taxpayer must withhold at the 4th individual tax rate (currently 24%) in any of four events.  The first event listed (Section 3405(a)(1)(A)) is “the payee fails to furnish his TIN to the payer in the manner required.”

Mr. Quezada was required to do backup withholding and file Form 945 to show the backup withholding and turn the money over to the IRS. He did not do any of it. The Court of Appeals agreed Mr. Quezada was responsible to backup withhold.

In 2014, the IRS assessed the backup withholding against Mr. Quezada for about $1.2 million plus penalties and interest. Mr. Quezada argued the time frame (statute of limitations) had run out and the IRS could not charge that amount for backup withholding. Mr. Quezada won that point. The Court of Appeals stated the IRS was past the statue of limitations when the IRS did the initial assessment in 2014. The IRS has stated it will not acquiesce this position. In other words, IRS will not follow the Court’s position.

This is a warning to taxpayers who do not have the recipient’s TIN/SSN at the time payment is to be made, that the taxpayers should backup withhold (24%) and subsequently file Form 945 to turn the funds over to IRS.

In summary, GET THE W-9 FULLY COMPLETED and IN HAND PRIOR to making a payment to any contractor.

Tax Returns need Letter 6475 and Letter 6419

This years tax returns will need the IRS Letter 6475 stating how much you received in the stimulus payments March of 2021.  We must see this letter or have a copy of the bank statement showing the deposit.  We can not accept verbal information on this regard.

If you received Advanced Child Tax Credit payments monthly from the IRS, you will be receiving a Letter 6419 showing the amounts paid during 2019.  We MUST have this letter to prepare the return.  We can not accept verbal information on this part.  If you need to try to download the letter from the IRS, please contact our office for information.