The W-2 electronic filing rules and related guidance published by the Internal Revenue Service (IRS) in January, 2015 have made it easier for managers to electronically distribute a W-2 tax form to their employees. Specifically, managers can electronically distribute a W-2 tax form to their employees without taking the time to issue a paper copy to the employee (e.g., by printing and signing a paper form and mailing it to the employee). This allows the employer to electronically transmit a W-2 tax form electronically and then mail the printed W-2 tax form to the employee, eliminating the need to take time to conduct paper copies of the W-2 tax form to the employee (the option is limited to managers and upper management and is only available to employees who have an annual income.
ERC shall be treated as additional taxable wages for purposes of IRC Section 199A) or alternatively, the employer can, if the particular employee qualifies as a specified service provider (SSP), ask the employee to electronically file a Form W-2 and provide any other relevant information with the form, as specified. As noted in “IRS Clarifies Step Employer Rules to Avoid Misconceptions,” the IRS issued an updated document (“Rule 1.204 (f)(1)©(ii)(B)(ii)), which clarified what is referred to as the ‘separate billing rules.’ “ The line items ‘Standard Schedule C’ and ‘Standard Schedule D’ on the form 1099-K are treated as Section 199A-qualified wages, which are subject to the 20% qualified business income (QBI) deduction for businesses, who qualify as ‘pass-through entities’ under IRC section 199A.
Why Pass-Through Entities May Be Required To File Form W-2 For Employees
In 2014, IRS issued Notice 2014-21, which created some confusion about the rules regarding Forms W-2 when it stated “A record or report of remuneration for services provided by the employee to the employee’s employer (including a return reflecting such remuneration) for compensation paid in connection with such employee’s services” were not required to be reported in Form W-2 or W-2C. The Notice 2014-21 sought to clarify the impact of Section 199A on employers’ report of compensation.
Accordingly, it is important that employers comply with Section 199A because “failure to do so may subject the entity to audit for violation of the requirements of this section and a possible court action and penalty of up to the greater of $1,000 or 2% of the aggregate amount of qualified business income of the entity for the preceding taxable year.” Note that the Notice 2014-21 does not require an employer to distribute a Form W-2 for its employees.
The Notice 2014-21 “gave relief to some entities that were concerned that they were required to issue Form W-2 to their employees, but that Form W-2C would not need to be issued and that , if the taxpayer chose, they could instead provide their employees with a Form 1099.” The Notice 2014-21 further stated “An employer is not required to distribute a Form W-2 to an employee if the employer has otherwise provided sufficient information to identify all payments made to an employee in connection with the performance of services by the employer.”
What Happened With the Notice 2014-21
In 2016, the IRS issued Notice 2017-29, which sought to clarify the rules. The Notice 2017-29 clarified that “an employer must make available, and file with the IRS, a form 1099-MISC for each individual employee who is treated as a qualified service provider for purposes of Section 199A” and that “if an employee receives, as compensation, $600 or more in wages or other compensation (such as employer contribution toward health insurance) from an employer and has a Schedule C, Form 1040, or other employment-related individual return, the amount of the qualified business income is subject to tax at the time of the payment.”
What’s Not Changed
As noted in “IRS Clarifies Step Employer Rule to Avoid Misconceptions,” the Notice 2017-29 stated “the determination of who is treated as a ‘pass-through entity’ under IRC section 199A is based on the aggregate amount of qualified business income derived from the individual service business activities that each individual services.” It also stated, “In general, the aggregate amount of qualified business income derived from each individual service business activity is determined based on the applicable statutory standard.” As such, the Notice 2017-29 does not address the determination of whether an entity is treated as a “pass-through entity” under IRC section 199A.
What Employers Must Do to Report Income From ‘Pass-Through Entities’
IRS has clarified that if an employer was paying more than $600,000 (or $500,000 if married filing jointly) to a sole proprietor or a partner in a “pass-through entity,” the employer must withhold and pay Federal income tax on its business income from the entity. The employer will not be required to withhold and pay tax on “qualified business income” to the employee.
The Notice 2017-29 was issued to “correct issues that arose during the immediate implementation of the Section 199A regulations,” according to the Notice 2017-29. A good way to describe the significance of this is that the Notice 2017-29 also clarifies who was required to withhold and pay tax on “qualified business income” for those entities that were in situations similar to EnerVest.
What Employers Must Do Now
To comply with the Act, a good way to do this is to file an amended W-2, along with the appropriate withholding and payroll withholding schedules. Employers should also ensure that they are withholding and paying the correct amount of tax based on their taxable income. An amended W-2 will require that the employer provide a new Form 1099-MISC to each of the employee’s direct reports.
Note: If an employer chooses not to file Form 1099-MISC, it is required to withhold and pay the employee’s tax at the rate of 28 percent for each dollar of wages or other compensation that an employee receives from the employer. An amendment to an amended W-2 and Form W-3, W-4, or any equivalent documents must be filed with the Social Security Administration by Dec. 31, 2017.
I Want to Buy a Business
Let’s assume that you have the capital for your next business, and want to invest in a different business that you would run with other employees, instead of yourself. In this case, Section 199A will have no effect on your business. But why would you want to leave EnerVest now? Your reason for wanting to buy a business could be a variety of things. For example, one of the challenges of starting and running a business is finding and retaining good employees. With an employee stock ownership plan, you have more flexibility in who you hire and retain.
Another advantage of ESOPs is that you can provide yourself with a variety of shares. You can buy some, sell some, or pass some of the ownership to employees. Another advantage of an ESOP is that you can pay yourself a salary or a fixed salary based on your business income and the amount of your ownership of the ESOP. All of this makes it easier to run your business and provide your family with a salary. ERC has done a lot of research and can help you understand ESOPs.
This is just one reason why buying a business may be attractive to you. But to fully understand the benefits of acquiring a business, you will have to evaluate the risks. For example, you may want to start a company and grow it over time, but it may not be a good idea to start a business and operate it if you are not doing it as a business, instead of as a hobby. Some other risks that you may have to evaluate include the fact that your business may not be profitable or successful at first. It is important to evaluate the risks involved before you decide to buy a business.
What the IRS Decides
In addition to the EnerVest decision, there are other factors to consider when deciding if you should buy a business. The decision is made based on your personal financial situation, your ability to raise the capital to buy the business, and your cash flow needs. But before you decide, you should consult with a tax advisor to help you evaluate the pros and cons. You may also want to evaluate the merits of an ESOP.
The tax code has a number of provisions that affect the ownership of assets through private corporations and trusts. Because a lot of these laws were passed at a time when a significant number of people were not self-employed, it is more difficult for individuals to take advantage of some of these laws. Fortunately, Congress has enacted a number of laws to help individuals who are considering businesses.
Some of the recent legislation has been very important to business owners and the businesses that they own. For example, a change in the law has increased the ability of individuals to give to charities in the context of ESOPs. And a change in the tax law that was effective on Jan. 1, 2017, provides for a 21% reduction in the corporate tax rate for active owners of ESOPs.
Getting Through the Early Years
How do you make the decision about whether to purchase a business or not? You need to determine if the business that you are considering is one that you would buy for your own use or if you would like to become an employee of the business. In most cases, if you are a self-employed individual, buying a business for yourself is the right decision. For others, however, it is better to become an employee of the business.
One of the difficulties with buying a business for yourself is that you have no record of it. Even if you have an ownership stake in the business, the business may not have records of who owns the business, so if you are an owner and you want to take the business public, you can’t prove that you are an owner. The same is true if you are a member of the employee ownership plan. You may be an owner, but you may not have a record of the company.
If you are contemplating buying a business and becoming an owner, you need to consider the business if it would be better for you to become an employee or buy an ownership stake in the business. One of the important questions is what kind of contribution would it make to your financial situation if you were to become a business owner? If you are trying to create a net worth that can be passed down to your children and grandchildren, you might not want to buy a business if it would cost you too much money.
So, if you are considering making the decision to become an owner or buy a business, you have to ask yourself: Is the business for me? ERC has many business buying groups. If you are considering buying a business for yourself, please consult with a group experienced in buying businesses for others. If you have other questions about the issues raised in this article, please contact us.
A number of factors need to be evaluated before you make the decision about whether to buy a business or not. You need to do some research about the business, including reviewing financial statements, researching the markets in which it operates, and talking to current owners and employees. For most business owners, buying a business is a smart decision.
The key question is whether you would be better off becoming an owner or buying an ownership stake in the business. Even though you may not have any record of the company, it is possible to become a business owner, and a business ownership option can be a way for you to grow your net worth while increasing the likelihood of passing your wealth on to your children and grandchildren.
Final Thoughts
Overall, Section 199A creates a fairly complex tax issue, but the IRS and Treasury have been diligent in keeping up with the legislation and providing clarification. For any questions or concerns that you have, call your tax advisor or go to the IRS website for information on how to answer questions and what your next steps may be. ERC has been helping companies of all sizes save money, improve business performance, increase cash flow, lower tax bills and grow. To schedule an assessment with us to review your company’s tax and accounting strategies, you can contact us with email or comment in comment box. Hope to hear from you.