Tax and Financial Planning articles

Professor William Byrnes International Tax & Financial Services

Posts Tagged ‘Health care reform’

Employees and Independent Contactors

Posted by William Byrnes on August 9, 2013


Why is this Topic Important to Financial Professionals? Many small business owners are faced with issues surrounding Form 1099 and how the rules apply to their businesses.  

What are some distinctions of the employees versus independent contractors?

An independent contractor, in general, has a majority of control over the details of his job function and only the end result is dictated by the company or individual who hires.  This is what is commonly known as “the degree of behavioral control.”  Another category used by the IRS and the courts to determine the status of an individual as either an employee or independent contractor is “financial control”.  Financial control involves examining the financial relationship between the parties such as reimbursement, and/or if any materials or space has been provided to accomplish the job.  Other relationship factors such as having a contract or agreement between the parties, as well as the terms of any contract, must also be examined in determining the employment status of the individual.

One of the issues that is often overlooked in the area of an employee relationship instead of an independent contractor relationship is that employees have X number of hours to dedicate to employment each week, whether that number is 40, 50, or anything else that an employment agreement might state.  Independent contracts are often not required to expend a set number of hours to accomplish a task, but instead enough hours to accomplish the task.

Another relevant issue to be considered in determining which of the two employment relations exist is that of termination.  An “At-Will” employee can normally be terminated and generally has no cause for a breach of contract and cannot sue for damages.  An independent contractor cannot usually be terminated without a breach of contract.

Tax Distinctions

Taxation of the two dissimilar positions is significantly different.  Independent contractors essentially work for themselves, and the business that pays them is, in effect, a client.  Generally, and independent contractor will file a tax return as a sole proprietor or closely held corporation, such as a Subchapter S Corporation.  An employee is subject to federal income tax withholding and the employer is subject to payroll taxes, included in the general W-2 process.

Independent contractors, like other businesses, recognize revenue and expenses. The independent contractor usually receives a Form 1099 from the source that pays him.  The Code and Regulations state that when a trade or business pays an individual for certain “services” over $600 that a Form 1099 is required to be filed with the Secretary of the Treasury.[1] And just as other businesses realize “legislative graces of Congress,” such as Section 162 deductions, the sole proprietor too may have expenses that generally qualify as trade or business expenses.

For a detailed analysis regarding independent contractors, see Tax Facts Q 814. How are business expenses reported for income tax purposes?


[1] Internal Revenue Code Section (IRC) 6041, Treasury Regulations (TR) 1.6041-1(a)(1)(i), TR 1.6041-1(a)(2).  

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The Changing World of Health Insurance: MLR’s Slam Commissions

Posted by William Byrnes on August 31, 2011


Increased medical loss ratios (MLRs) are devastating health insurance producers’ balance sheets and driving agents out of the health insurance business. As of  January, the Obama Administration’s Affordable Care Act increased the MLR requirement imposed on health insurance companies, forcing many carriers to reduce agent commissions by 25 percent or more.

The objective behind imposing MLRs is to ensure that consumers receive the full value of their premium dollars. This is accomplished by implementing a shift in how insurance carriers spend their money. Insurance carries are now required to spend premium dollars on direct medical services, rather than on administrative costs and profits. Under the new MLR program, insurers must spend 80 to 85 cents of every dollar on direct medical services. Insurers who fail to meet the MLR requirement must either adjust their premiums to account for any discrepancies, or refund excess premiums to consumers.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of health care reform in Advisor’s Journal, see Long-term Care Insurance Reform Act of 2010 (CC 10-46), Changes Affecting Large Employers in the 2010 Health Reform Law (CC 10-17), Changes Affecting Business in the 2010 Health Reform Law (CC 10-16), & Changes Affecting Individuals in the 2010 Health Reform Law (CC 10-15).

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1099 B2B Reporting To Be Repealed

Posted by William Byrnes on March 29, 2011


Why is this Topic Important to Wealth Managers? This discussion is focused on a hot topic in Washington and around the country.  The new 1099 reporting requirements that are expected to come into effect next year may be amended or removed all together. Wealth managers would be well served to be knowledgeable on the subject that not only affects clients and their businesses, but it also directly affects many wealth managers themselves who pay for goods and services as a trade or business. Thus, here at Advanced Markets we bring wealth managers in particular the most relevant and up-to-date information on the web.

Repeal of the health reform law’s business-to-business 1099 reporting requirement is a step closer, with the U.S. Senate passing an amendment on February 2 that would repeal the provision.  Praising passage of the Senate amendment, Senator Stabenow said, “Today we provided a common-sense solution for business owners so they can focus on creating jobs, not filling out paperwork for the IRS…. If left unchecked, 40 million small businesses would see their IRS 1099 paperwork increase 2000 percent.”

President Obama even praised the repeal efforts in his state of the union address, receiving a resounding round of applause.  Acknowledging that his health care reform law has its share of flaws, and offering to work with the Congress to correct those flaws, he said that “We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

The House of Representatives passed H.R. 4, the Small Business Paperwork Mandate Elimination Act of 2011 by majority vote (314-112, with 76 Democrats joining a unanimous House GOP).[1] The legislation, if passed by the Senate and signed into law by President Obama, would repeal an expansion currently scheduled to take effect in 2012 of information that businesses must report to the Internal Revenue Service on Form 1099.

Specifically, the new legislation would amend the Internal Revenue Code to repeal the expanded 1099 information reporting requirements on payments made to corporations, rental property expense payments, and payments for property and other gross proceeds.  The legislation would thus strike portions of section 6041 of the Internal Revenue Code which were added by the Patient Protection and Affordable Care Act of 2010 (PPA).

The PPA expanded tax information reporting requirements to require businesses to issue a Form 1099 for any payments to corporations (rather than just to individuals) and for any payments for property (rather than just for services or investment income) that exceed $600 per year per payee.  H.R. 4 would strike language requiring “amounts in consideration for property” and “gross proceeds” to be subject to 1099 reporting requirements under section 6041 of IRS Code in order to eliminate the expanded reporting requirements.  The bill would also repeal expanded information reporting requirements on rental property expense payments that are currently in effect.

According to the Joint Committee on Taxation, repealing these expanded 1099 information reporting requirements for rental property expense payments as well as certain payments of more than $600 will reduce taxes by approximately $24.7 billion over ten years. [2]

Section 6041 of the Internal Revenue Code outlines reporting requirements and generally requires information returns to be made by every person (payor) engaged in a trade or business that makes payments aggregating $600 or more in any taxable year to another person (payee) in the course of the payor’s trade or business.  The information returns must be filed with the Internal Revenue Service and corresponding statements must be sent to each payee.

Beginning in 2012, certain payments not previously subject to 1099 reporting requirements, including those made to corporations and those made for property, will become subject to the reporting requirements under the PPA.  The PPA and subsequent legislation expanded information reporting requirements of businesses for payments of $600 or more to any vendor and on rental property expense payments.  Some argue, these new requirements would likely impose a huge tax compliance burden on small businesses, forcing them to devote resources to tax filing instead of to business expansion and job creation.

 

For previous coverage of the Health Care Reform Act’s enhanced 1099 reporting requirement in Advisor’s Journal, see Health Care Reform Causes an Avalanche of 1099s (CC 10-84).

Please check back with Advisorfyi and Advisorfx for more timely information on 1099 reporting.

 

Posted in Tax Policy | Tagged: , , , , , , , | 1 Comment »

Health Insurance Coverage for All Americans

Posted by William Byrnes on January 28, 2011


The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 are generally known as the national health care legislation.  The new laws created a number of changes in the health care insurance system, in general.  These changes will be discussed throughout the week, as presented below.

Under the new law, each individual is required to have “minimum essential coverage” for each month of the year starting in 2014. “Minimum essential coverage” means whichever; a government sponsored program such as Medicare, Medicaid, and TRICARE; an employer sponsored plan; plans in the individual market; and grandfathered health care plans.

For those individuals who choose not to obtain minimum essential coverage, imposed is a penalty to be included in the taxpayer’s annual return.  The penalty applies to each month where the individual is not covered equal to an amount of either 1/12 of the average cost of “bronze” level coverage or the greater of an annual set dollar amount, which is pegged at $695 for taxable years 2016 and beyond, or a set percentage of the taxpayer’s household income, currently 2.5 percent beginning after 2016. (The Legislation includes a phase in schedule for both the flat dollar amount and the percentage of income. The flat dollar amount is $95 for 2014, $325 for 2015. The percentage of household income is 1 percent for 2014 and 2 percent for 2015.)  To read this article excerpted above, please access AdvisorFYI

 

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The National Health Care Bill Invoice

Posted by William Byrnes on January 4, 2011


Barack Obama signing the Patient Protection an...

Image via Wikipedia

Why is this Topic Important to Wealth Managers? Reviews the National Health Care Legislation’s revenues and expense provisions.  Discusses one area in particular where high income earners are subject to additional tax liability provided by the new law.

There are many new questions being raised by the national health care legislation that was passed into law earlier this year.  The Patient Protection and Affordable Care Act[1] and the, Health Care and Education Reconciliation Act of 2010,[2] created a number of significant changes to the landscape of the health care system in the United States.  The total cost of the program, is estimated at approximately $356 Billion dollars over the ten year period from 2010-2019. [3]However, revenue projections from taxes incorporated into the legislation are actually estimated upwards of $437 Billion dollars over that same ten year period. [4]

Now that we can reasonably be assured the health care bill’s cost is properly allocated and encumbered, let’s see how and where the revenue generating provisions will affect American taxpayers.

The largest single line item that will contribute to the funding of the health care legislation is a new surtax for Medicare.  Estimates that over $200 billion will be raised over 10 years, is a burden carried by only a small percentage of high income taxpayers, estimated at approximately the top 2% of all taxpayers, or those taxpayers who will earn more than $200,000 or $250,000 filing jointly. [5] This means approximately 98% of the population will not be required to contribute to the new surtax with regards to Medicare.  To read this article excerpted above, please access www.AdvisorFYI.com

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Health Care Reform Causes an Avalanche of 1099s

Posted by William Byrnes on November 11, 2010


Seal of the Internal Revenue Service

Image via Wikipedia

The Health Care Act includes many provisions that are not directly related to health care but which are intended to fund the colossal government expenditure necessitated by the Act. One of the most burdensome changes imposed by the Health Care Act is the massive expansion of the payees and payment types that require a 1099. The new requirements will trigger a flood of paperwork for everyone involved, including payors, payees, and the IRS.

The new information reporting requirement will kick in on January 1, 2012. But the IRS will not be releasing guidance on the changes right away, so the time for taxpayers to implement the new requirements may run short. The comment period preceding the IRS’s release of proposed regulations passed at the end of September, so we can expect proposed regulations in the coming months. Advisor’s Journal will keep you informed as the IRS implements these new rules.   Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Health Care Act in Advisor’s Journal, see Changes Affecting Individuals in the 2010 Health Reform Law (CC 10-15), Changes Affecting Business in the 2010 Health Reform Law (CC 10-16), and Changes Affecting Large Employers in the 2010 Health Reform Law (CC 10-17).

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