Vision Payroll

In Private Letter Ruling 200930029, the Internal Revenue Service (IRS) ruled that a taxpayer’s expense reimbursement arrangement (the Plan) satisfied the accountable plan requirements of §62(c). The taxpayer in question expanded its business to include a new division that sells professional tools and equipment and repairs and maintains the tools. The technicians who repair the tools “are required to provide and maintain their own tools and equipment for performing the repair and maintenance work.” Under Regulations §1.62-2(c)(1), payments under a reimbursable plan are not taxable if the plan “meets the requirements of business connection, substantiation, and returning amounts in excess of substantiated expenses.” Since the taxpayer’s plan meets these requirements, “all payments made under the Plan in accordance with the terms of the Plan will be excluded from the Technician’s income and will not be wages subject to the withholding and payment of employment taxes.” Contact Vision Payroll if you have any further questions on accountable plans.

In Private Letter Ruling 200825043, the IRS concluded that employers who receive a determination letter from the IRS that someone previously classified as an independent contractor should be classified as a employee may use §3509 to reduce the amount of employee FICA tax and federal income tax payable. The federal withholding in such cases is reduced to 1.5% of wages regardless of what the employee claims on a Form W-4. The FICA tax rate is reduced from 7.65% to 1.53% on the employee’s portion. The employer’s rate remains at 7.65%. If the employer did not file Form 1099-MISC for payments made to the newly-classified employee, the employee withholding rates are doubled. Furthermore, no interest is charged on the late payment of the employee’s portion of the tax.