On September 21, 2011, the IRS unveiled a program that allows taxpayers to voluntarily reclassify independent contractors as employees at a significantly reduced employment tax burden, with no penalties or interest. The voluntary classification settlement program (VCSP) is designed to help taxpayers address their tax responsibilities.

The VCSP was designed to encourage voluntary compliance with worker classification rules and is the start of an increased focus on the worker classification issue.  To increase enforcement efforts, the IRS, the Department of Labor, and several states have signed a memorandum of understanding.  This memorandum is designed to strengthen information sharing regarding misclassified workers.

The determination of whether a worker is an employee or an independent contractor is usually based on a multi-factor common-law test that considers the facts and circumstances of the relationship between the worker and the employer.  The primary factor usually revolves around the control that is or can be exercised over the worker.  Since the determination involves facts and circumstances, many times the classification is not as clear cut as one would hope.

If the IRS conducts an audit of this issue and finds misclassifications, the IRS will probably be less willing to negotiate on worker misclassification penalties and interest because the taxpayer had a chance to come forth voluntarily under VCSP and failed to do so.

Since the rules surrounding whether a worker should be classified as an independent contractor or an employee are complex and often difficult to apply, you may consider consulting one of the Las Vegas CPAs at Wallace Neumann and Verville, LLP.

The IRS has a new buyout program that encourages employees to accept early retirement.  Under the new buyout program, about 400 employees are being offered $25,000 to exit the IRS early.  This program is similar to the buyout offer that emerged last November.  The November buyout also promised $25,000 to those that accepted early retirement.

The buyout program has emerged on the heels of reports made to Congress regarding increasing workloads expected from IRS employees just as lawmakers threaten budget cuts at the IRS.   The increasing complexity of the Tax Code, frequent changes in tax laws, and demands for IRS employees to help oversee programs such as the health care reform law have placed a large strain on the Service’s resources.  Currently, it is estimated that the IRS employs approximately 100,000 employees.

For more information, read IRS Offers Early Retirement Buyouts to Employees: Accounting Today.   As always, please feel free to contact your Las Vegas CPAs if you have any questions.

Under the Recovery Act, employers who hired certain unemployed veterans were eligible for a tax credit up to 40% of the first $6,000 (maximum credit of $2,400).  This credit was to expire at the end of 2010.

Last week, the President signed into law two new tax credits for businesses dubbed the “Returning Heroes Tax Credit” and the “Wounded Warrior Tax Credit.”  The credit amounts depend on the amount of time the veteran was unemployed.  Here are the breakdowns:

The Returning Heroes Tax Credit

• 40% of the first $6,000 paid to a veteran that has been out of work for between 4 weeks and 6 months

• 40% of the first $14,000 paid to a veteran that has been jobless for 6 months or more

The maximum amounts for the credits range from $2,400 to $5,600 per newly hired unemployed veteran.

The Wounded Warrior Tax Credit

• 40% of the first $24,000 paid to disabled veterans that have been jobless for 6 months or more

The maximum amounts for the credit is $9,600 per newly hired unemployed disabled veteran.  This is an expansion of the “Work Opportunity Tax Credit” for disabled veterans which used to be capped at the first $12,000 of wages.  This law expands the maximum tax credit from $4,800 to $9,600.

As always, feel free to contact a professional at Wallace Neumann & Verville, LLP for guidance regarding the new business tax credits.

Effective July 1, 2011, the 0.2% surtax on Federal Unemployment Tax (FUTA) is no longer in effect.  The tax rate has been reduced from 6.2% to 6.0% and applies to the first $7,000 of wages paid to each employee during the year. Generally, a credit for amounts paid into state unemployment funds can be applied against the FUTA tax.

What this means for employers

Employers are encouraged to separately track their FUTA tax calculations. The first group should be calculated using the 6.2% tax rate for the period covering January 1, 2011 through June 30, 2011. The second group should be calculated using the 6.0% tax rate for the period covering July 1, 2011 through December 31, 2011.

What employers can do to maximize their credit

The maximum allowable credit is 5.4% of FUTA taxable wages. This translates into a 0.6% total FUTA tax rate after June 30, 2011 (6.0% – 5.4% = 0.6%). Employers who pay their state unemployment taxes (SUTA) in full, on time, and on all the same wages subject to the FUTA tax will be eligible for the maximum credit, as long as their state is not a credit reduction state.  See IRS Publication 15 for more information.

How this will affect the 940 tax return

The IRS will revise Form 940, Employer’s Annual Federal Unemployment Tax Return, to handle the FUTA rate change for the calendar year 2011.

If you have any questions about how this rate decrease will affect you, feel free to contact us at Wallace Neumann & Verville, LLP .

In response to continually increasing gas prices, the IRS announced on June 23^rd that the optional standard mileage rate will see a 4.5 cent increase to 55.5 cents per mile for July through December 2011.  A 4.5 cent increase is also in effect for medical and moving mileage, raising the rate from 19 cents to 23.5 cents a mile.  If you use the standard mileage rates for recording automobile expenses or for employee reimbursements etc, please note this increase as of July 1^st.  Since charitable mileage rates are set by statute, they are not affected and remain at 14 cents per mile. Due to increased IRS scrutiny in the area of mileage reimbursements, it is imperative to keep a written log of all business miles driven with company and/or personal vehicles.

Updated mileage rates, in cents per mile:

If you have any questions about how these rate increases will affect you, feel free to contact us at Wallace Neumann & Verville, LLP .