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I went through this and there are things you should know. Yes the states communicate but maybe not for a year or so. Usually the state wants the unemployment insurance only but they will check and see if the individuals reported the income, if not then you are on the hook for swt too. as for the feds. and this is important to look at, they have a voluntary disclosure and reclassification program where you basically fess up and promise to make these individuals employees for the current year and beyond. NO penalties no back filing no nothing! I think there was a fee of a few hundred dollars to apply but don't really recall. The employer needs to explain how this doesn't cost the employees anything if they were paying the fica on their 1040 anyway. We billed them for the current years fica catch up and spread it out to make it easier on them. Didn't catch up on fwt or swt since they should have been making estimated payments anyway. Here is a major problem, if the employees had pension plans, they can no longer contribute and any write-offs they took against the income is now subject to 2%. For my doctors office, the state tried to reclassify even the landscaper and cleaning lady and even included payments to patients as refunds. They basically list individual that a check was written to and make you prove who shouldn't be considered.

Is this the same computer problem that deleted Lois Lerner's e-mails? I think it was caused by the CYA_no_one_will_get_in_trouble.IRS virus.

DON'T forget the camera....ever at a client who doesn't have a copy machine and you want a copy of something, ie a check to answer a notice, just take a pick and print it later or email to staff to draft the response

I've never worked a situation where there was a wholesale reclassification of employees, so maybe this isn't feasible. But what would be the harm in explaining the situation to the employees in detail, and asking them to allow retroactive withholding of the EE portion of SocSec/Med back to the beginning of the year. Possibly proportionally spreading the under-withheld amounts through the remainder of this year. I'm sure some employees would object, but others might be more fair-minded about it. If the business is truly in jeopardy of folding, it might be wise to lay it all out to them and tactfully explaining that the plus side of agreeing is that they get to keep their job.

Thanks everyone for your help. Not ruling out help from a qualified tax attorney, but for now, will gross up net pay in 2014, prepare 1st & 2nd quarterly payroll returns and issue only W-2's. Catherine, you make a good point. Employer's can go under in these circumstances. When all their past products and services were priced and sold based on different pay structures, then to retroactively recalculate payroll, penalties, interest. Well that debt can drag a business to the bottom of the river. The penalties alone can kill a fragile company. It may happen in this instance too.

I believe most clients in this situation have a drawer full of notices from the IRS and/or state tax depts. They do their best to ignore it until one day the tax authority drains their bank account or attaches their pay, then they show up at your door. You ask them to bring in all correspondence they have received and they deliver a handful of letters that, judging by the notice sequence numbers, you know represent about 1/4 or less of what they really got. The habit of ignoring letters from the IRS backfired on one of my clients recently. He came in after they attached his pay. I filed 7 years of returns, all of which had big refunds (some too late to collect). I came into work this week to find a stack of IRS letters telling me (their representative) that their refund checks for 2009, 2010, and 2011 weren't cashed for a year and expired. Would they please call to have the checks reissued. These are middle-class folks with a child in college who could certainly use $8k. I think they got in the habit of ignoring IRS correspondence and did the same with these letters that contained refund checks!

They wrote it to give the t/p no 'outs' at all. Iff they claim they sent the demand, that's it. Unless he can prove he was out of the country, or that they sent it to the wrong address, they are screwed. CA needs the money, don't you know? The fact that they had more withheld than they owed matters to the IRS, but not to CA. I do 'suspect' that he MIGHT have gotten the demand letter which spurred him to come to you and get the return done. But at this point it's irrelevant.

Thanks everyone. Called the practitioner line. Client SWEARS they did not receive a "Demand For Return" notice. However, FTB says one was mailed 2/11/14 with a required response date of 3/19/14. We received the information to prepare the 2012 return on 6/18/14. The person at the FTB said the client should write a letter and prove that the client did not receive the notice. Me: Just how is he to do that? Him: Well he has to convince us to remove the penalty. Me: If you had to prove that he received it, how would you do that? Him: Uhhhhmmmmmmm We could not. Me: Most tax agencies send letters of such importance Certified. Was it sent Certified? Him: No it was sent regular First Class Mail. Me: So when my client writes the letter, what is in your system trumps what my client says, even with no proof on your part of delivery of the notice? Him: Yes, that is the case. Me: Thank You very much. You have given me the information I was looking for, and much much more. "Click" GRRRRRRRRRRRRRRRRRRRRRRRRRRR One more item... Him: Did the client know the return was late? Me: I cannot answer that question because I did not specifically ask my client. Him: But did he know the return was late? Me: Does the statute say that even without receipt of the notice, if the taxpayer "knew" the return was late, you can assess the penalty? Him: No it does not say that, but if the taxpayer knew it was late, even without a notice, he should not object to the penalty. The statue has been in place since 1996.

Looking at the various responses to this question, I begin to think of how my life has changed with this tool. A friend who is very high-tech kept telling me it would change how I organize my life, both work and personal. So I gave in and bought my first iPad 4 years ago. At first it was a novelty - I used it occasionally to check email and look stuff up. (The original iPad didn't have a camera). Nevertheless, I began to realize how much freedom it provided, increasing my efficiency and helping me stay in touch. Eventually I came to realize just how useful it was, especially when I bought an iPad II with a camera. It also helped that data plans kept improving and at the same time wifi became more prevalent. Better and more useful apps kept coming along as people began to see the power of this technology. Today, I can get by with just my iPhone for many tasks, but I still want the iPad handy when I'm doing something that requires lots of keyboard work or a bigger screen with more detail. I think some people never get past the gaming and hobby use of their tablet. For them, a tablet is a toy or a status symbol, and that's all it will ever be. For others it's a business tool as well as a way to stay in touch with friends across town or around the world. And when I'm in India, it sure is nice to call my wife on Facebook and speak with her face-to-face on a screen big enough to actually see the other person. So I'll have to say that gaming and hobby use aside, for some of us the tablet has become an integral part of how we function on a daily basis.

Good idea John. We are planning to have a company-wide meeting to review all options. We are also planning to slightly adjust/reduce future compensation to factor in the benefits of employee status.

Yes, it should be grossed up if the company is paying the employees' share of FICA and Medicare. The new gross would be the net check received divided by 0.9235. That is the gross amount that the FICA and Medicare will be based on, not the net amount that was actually paid to the employees.

Definitely talk to an employment law specialist for PA. I have seen businesses go under after these reclassifications. Also note that state rules vary; someone who is an "employee" by Massachusetts standards could well be an independent contractor by federal standards. Nightmares.

Another HUGE issue with tablets is the total lack of privacy. Just about ANY app you want to install wants to track EVERYTHING on that tablet. Contacts. Location by GPS. Emails. Text messages. Phone calls (if it has that capability). Login info for any site you visit with it. EVERYTHING. I bought one for when I teach, to put my presentations on (some places it's too dark to read the notes on my Kindle). I have a couple of came-with-it games (Sudoku, jigsaw puzzles). NO contacts, or anything else computer-useful, because I have yet to find ANY way to install those without signing over my life. Which I will NOT do. If the NSA wants it, they will have to work for it.

Here is a little insight into PA's law. It may be that the person in question is an employee, but the others are not. There is always the possibility of bureaucratic overreach. 43 P.S. §753(l)(2)( b ). In Hartman v. UCBR (opinion here), [this link doesn't work, use the one below.] the Pennsylvania Commonwealth Court applied that legalese gobbledygook to a real-life situation. I love it when a court comes right out and states the holding: We conclude that, as a matter of law, where an employer supplies all equipment, pays a fixed rate even when a job does not take place, requires that its business cards be distributed and other business cards be collected, and even goes so far as to determine how early a person must arrive at a job and what clothing a person is to wear, that employer is exercising significant control over the manner in which Claimant is performing his duties. Accordingly . . . Employer did not meet its burden of proving that Claimant was an independent contractor. http://www.lawfficespace.com/2012/02/pa-court-weighs-in-on-employee-vs.html

I have a Samsung Galaxy Note 10.1. I use it quite a bit. I use it to take notes in client meetings, and they sync with my desktop. I can send tasks directly from my client meetings to my staff or myself. I also use it daily for the reasons discussed by JohnH. Finally, I have Teamviewer on it and can access my desktop in a pinch if I really need to look at a tax return, etc. I don't absolutely NEED it, but I don't want to do without it. Also, from a leisure standpoint, I can access my Nook and Kindle libraries from the tablet, so I no longer carry my old Nook (first generation), and I've never purchased a Kindle. It's also a good way to entertain my 9 year old (books, games, access to netflix, etc.) if we're stuck somewhere. (Not relevant to many on this Board, but nevertheless a lifesaver sometimes.) I agree with Marilyn, and treat it as I treat my handbag.

This is a little different than a late filing penalty. (R&TC Code 19131), which is similar to the IRS. It is a demand for information (return) (Code 19133) and carries a flat 25% penalty. Sometimes it is called a demand penalty. Did your client receive a Filing Enforcement letter (FE)? It has been in place as long as I can remember - nothing new. Also, it can't go away as you can see, because otherwise your client would have had a refund. California FTB is onerous in many ways. They can assess an unfiled year based on income docs (same as IRS SFR). But they can also assess based on estimates. Pay mortgage interest? They multiply by four and use that as your income. $20K M.I. becomes $80K "income". Have a CA licensed profession or tradesperson, which includes just about anybody in a service profession, contractors, insurance sales people, doctors, nurses, barbers, etc. etc. They take the average earned by your trade or profession and assess based on it. From Jack from Ohio "I personally filed 2010, 2011, 2012 & 2013 for a client in CA in the last 6 months. All refunds received and not a single notice like this one." They were not under Filing Enforcement., otherwise they would have the penalty tacked on.

If it is a REQUIREMENT of one of the courses she is taking, it can be added as additional expense for calculating Education (American Opportunity Credit) expense deductions on 8863. Otherwise, no deduction. Must be REQUIRED, not just suggested. The information provided her for that class will tell whether it is required or just suggested. 3 kids here, total of 11 years in college between them. I have very extensive first hand experience about this stuff.