Reporting Qualified Sick and Family Leave Wages Paid to Employees

The IRS issued guidance to employers on reporting the amount of qualified sick and family leave wages paid to employees on Form W-2 for leave taken in 2021. The notice provides guidance under the recent legislation including the Families First Coronavirus Response Act, as amended by the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021. The credit for qualified sick and family leave wages is a refundable tax credit to employers with fewer than 500 employees to reimburse them for the cost of providing qualified leave wages and is currently extended through September 30, 2021.

The employer must include qualified leave wages in the amount of wages paid reported in Box 1, Box 3 (up to the social security wage base), and Box 5 of Form W-2. Eligible employers have separate reporting requirements for leave provided to employees during the period beginning January 1, 2021 through March 31, 2021 under the Families First Act and leave provided to employees during the period beginning April 1, 2021 through September 30, 2021 under the American Rescue Plan Act of 2021. The employer must separately report the following in Box 14 of Form W-2 or on a separate statement provided with the Form W-2:

  • the total amount of sick leave wages subject to the $511 per day limit;
  • the total amount of sick leave wages subject to the $200 per day limit; and
  • the total amount of emergency family leave wages.

The guidance provides employers with model language to use as part of the instructions for employee for the Form W-2 or on the separate statement provided with the Form W-2. Additionally, the wage amount that the notice requires employers to report on Form W-2 provides employees who are also self-employed with the information necessary to determine the amount of any sick and family leave equivalent credits they may claim in their self-employed capacities.  Call the Crosslin tax team at (615) 320-5500 with any questions.  We are here to help!

What employers need to know when classifying workers as employees or independent contractors

It is critical for business owners to correctly determine whether the individuals providing services are employees or independent contractors.

An employee is generally considered anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker’s services are performed. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public. Doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers or auctioneers are generally independent contractors.

Independent contractor vs. employee
Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to consider.

  • Behavioral control − Does the company control or have the right to control what the worker does and how the worker does the job?
  • Financial control − Does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.
  • Relationship of the parties − Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business?

Misclassified worker 
Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee without a reasonable basis, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of uncollected Social Security and Medicare taxes due on their compensation.

Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program is an optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible taxpayers who agree to prospectively treat their workers as employees. Taxpayers must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

Who is self-employed?
Generally, someone is self-employed if any of the following apply to them.

Self-employed individuals, including those who earn money from gig economy work, are generally required to file an tax return and make estimated quarterly tax payments. They also generally must pay self-employment tax which is Social Security and Medicare tax as well as income tax. These taxpayers qualify for the home office deduction if they use part of a home for business.

If you have any questions, reach out to the Crosslin tax team at (615) 320-5500.  We are here to help!

TBH Tax Joins Crosslin

Crosslin PLLC has enhanced its roster of services by merging in TBH Tax, LLC, a tax strategy, asset protection, family CFO services, and cryptocurrency advisory firm based in Wyoming with a national reach.  The merger will accelerate the growth strategy of both companies, while expanding services offered, providing a wider base of resources, and enlarging the pool of tax and accounting specialists to serve clients.  The merged entities will operate as Crosslin PLLC and will rank well among the largest 300 accounting firms in the country.

“Our company knew that it was the right time to find a partner that complemented our ideology and commitment to service to embark on the next phase of growth,” said John Crosslin and Justin Crosslin, co-managing principals.  “We found the right one in TBH Tax and look forward to the benefits this partnership brings to our clients and our team.”

Services and expertise offered by the expanded Crosslin PLLC include tax strategy and compliance, audit and assurance, managed accounting, asset protection, family CFO services, state and local sales tax, valuation, litigation support, managed HR services, cryptocurrency advisory, and other accounting and IT related advisory services.

Crosslin’s Jason Sweatt will continue as Managing Tax Principal and Ward Chaffin as Managing Accounting Principal.  TBH Tax’s Randy Boll will serve as Principal – Tax Strategy & Asset Protection Planning.

“With the extensive accounting and advisory knowledge of both companies, this combination is a win-win for everyone, but most importantly for our clients,” said Boll.

About Crosslin

Founded in 1987, Crosslin was created out of the desire to provide companies with an alternative to the national and large regional accounting firm options.  As those firms focused on larger, multinational customers, Crosslin set out to serve privately owned companies, not-for-profits and governmental customers as well as to offer alternative services for the SEC market.  Its membership in the BDO Alliance USA and PCAOB helps provide a platform for rendering these services.

The Crosslin brand includes Crosslin Certified Public Accountants, Crosslin Technologies, and Crosslin Healthcare.

Crosslin offers tax strategy and compliance, audit and assurance, managed accounting, asset protection, family CFO services, state and local sales tax, valuation, litigation support, managed HR services, cryptocurrency advisory, managed IT and cybersecurity, and other accounting and IT related advisory services.

Penalty Relief for Reporting Interest in Foreign Partnerships

New schedules have been released for pass-through international tax reporting for tax year 2021. The new standardized format assists pass-through entities in providing partners and shareholders with the information necessary to complete their returns with respect to the international tax aspects of the Code and allows the IRS to verify tax compliance more efficiently.

Regulations generally require a U.S. person that controls a foreign partnership or holds at least a 10-percent interest in a foreign partnership that is controlled by U.S.persons holding at least 10-percent interests (a U.S. partner) to furnish information relating to the partnership (a controlled foreign partnership or CFP), including information relating to the U.S. partner’s ownership interests in the partnership and allocations to the partner of partnership items. A U.S. partner that controls a CFP may also need to provide information relating to another U.S. partner’s ownership interest in the partnership and allocations to that partner of partnership items.

For tax years beginning in 2021, two new forms may be required for partnerships, S corporations, and U.S.  persons with an interest in foreign partnerships:

(1) Schedule K-2, Partners’ Distributive Share Items – International or Shareholders Pro Rata Share Items-International; and

(2) Schedule K-3, Partner’s or Shareholders Share of Income, Deductions, Credits, etc.

Recognizing the transitional challenges with the adoption of Schedules K-2 and K-3 by affected pass-through entities and their partners and shareholders, the IRS issued guidance providing certain penalty relief for the 2021 tax year. Partnerships, S corporations and U.S. persons with interests in foreign partnerships may rely on transition relief from penalties for tax years beginning in 2021 with respect to new Schedules K-2 and K-3.

For tax years beginning in 2021, penalties will not be imposed for incorrect or incomplete reporting on Schedules K-2 and K-3 if the partnership or S corporation establishes to the satisfaction of the IRS that it made a good faith effort to comply with the requirements to file or furnish the schedules. A good faith effort will be measured based on the extent the taxpayer has made changes to its systems, processes, and procedures for collecting and processing information relevant to filing and the extent information obtained from partners or shareholders or reasonable assumptions made when information is not obtained.

Please contact the Crosslin tax team at (615) 320-5500 if you would like greater detail or information on the new requirements for pass-throughs and their reporting of international tax information. We are here to help!