The Internal Revenue Service has issued a new tax form for employees who have been misclassified as independent contractors.

Form 8919, Uncollected Social Security and Medicare Tax on Wages, will

 

The Internal Revenue Service has issued a new tax form for employees who have been misclassified as independent contractors.

Form 8919, Uncollected Social Security and Medicare Tax on Wages, will now be used to calculate and report the employee's share of uncollected Social Security and Medicare taxes due on their compensation. 

Form 8919 will apply for tax year 2007 to workers who performed services for an employer, but whose employer did not withhold the worker's share of Social Security and Medicare taxes. The worker must meet one of several criteria, including being designated a Section 530 employee by their employer or by the IRS prior to Jan. 1, 1997.

By using Form 8919, the worker's Social Security and Medicare taxes will be credited to their Social Security record. In the past, misclassified workers often used Form 4137 to report their share of Social Security and Medicare taxes. Misclassified workers should no longer use this form. Instead, Form 4137 should only be used now by tipped employees to report Social Security and Medicare taxes on allocated tips and tips not reported to their employers.

Sometimes employers misclassify their workers as independent contractors when in fact, their workers are employees. If you have had clients in this situation, you may have used Form 4137 in the past to report the client's share of social security and Medicare taxes. Form 4137 was designed to be used by tipped employees to report their share of taxes on allocated tips and tips not reported to their employers. However, the lack of any other options forced non-tipped workers to use Form 4137 to report their share of social security and Medicare taxes if they were misclassified as an independent contractor by their employers.

The IRS has addressed this issue by developing new Form 8919, Uncollected Social Security and Medicare Tax on Wages.  The form is now available and can be used for filing 2007 year taxes.

To use Form 8919, the worker must meet one of the following conditions to indicate that they were an employee while performing the services for the employer:

• The worker has filed Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and received a determination letter from the IRS stating they are an employee of the firm.
• The worker has been designated as a section 530 employee by their employer or by the IRS prior to January 1, 1997.
• The worker has received other correspondence from the IRS that states that he or she is an employee.
• The worker was previously treated as an employee by the firm and he or she is performing services in a similar capacity and under similar direction and control.
• The worker's co-workers are performing similar services under similar direction and control and are treated as employees.
• The worker's co-workers are performing similar services under similar direction and control and filed Form SS-8 for the firm and received a determination that they were employees.
• The worker has filed Form SS-8 with the IRS and has not yet received a reply.

Since the IRS shares Form 8919 data with the Social Security Administration, the worker's social security and Medicare taxes are properly credited to the worker's social security record.

 

On December 20, 2007, President Bush signed the Mortgage Forgiveness Relief Act of 2007, providing relief to taxpayers who are facing hardship due to home foreclosures by allowing a limited exclusion for discharged home mortgage debt.

 

The

 

On December 20, 2007, President Bush signed the Mortgage Forgiveness Relief Act of 2007, providing relief to taxpayers who are facing hardship due to home foreclosures by allowing a limited exclusion for discharged home mortgage debt.

 

The Act also includes several other provisions such as a liberalized exclusion rule for home sales by surviving spouses; an extension of the deduction for mortgage insurance premiums; and a limited exclusion for qualifying state or local rebates or payments to firefighters and other emergency responders.

 

In addition, the new law increases the penalty for failure to timely file partnership returns, adds a new penalty for failure to file S corporation returns, and requires higher estimated tax installments for large corporations in 2012.

 

Cancelled Debt:

Taxpayers may exclude up to $2 million of mortgage debt forgiveness on their principal residence. For this purpose, qualified principal residence indebtedness is acquisition indebtedness with respect to the taxpayer's principal residence, but with a $2 million limit ($1 million for married individuals filing separately).

Under Sec. 163(h)(3)(B), acquisition indebtedness of a principal residence is indebtedness incurred in the acquisition, construction, or substantial improvement of an individual's principal residence that is secured by the residence. It includes refinancing of debt to the extent the amount of the refinancing doesn't exceed the amount of the refinanced indebtedness. The basis of the taxpayer's principal residence is reduced by the exclusion, but not below zero.

The exclusion only applies to a taxpayer's principal residence.

Effective for indebtedness discharged on or after January 1, 2007, and before January 1, 2010.

 

Mortgage Insurance Premiums:

The deduction for qualified mortgage insurance premiums as qualified residence interest is extended for three years. The deduction is allowed if the amounts:

• Are paid or accrued before January 1, 2011;

• Aren't properly allocable to any period after December 31, 2010; and

• Are paid or accrued with respect to a mortgage insurance contract issued after December 31, 2006.

 

Volunteer Firefighters and Emergency Medical Responders

Members of qualified volunteer emergency response organizations are entitled to exclude from gross income amounts for any qualified payment or any state or local tax benefit.

A qualified payment is a payment or reimbursement provided by a state or political subdivision to a taxpayer for the performance of services as a member of a qualified volunteer emergency response organization.

The amount of these payments is limited to $30 for each month during the year that the taxpayer performs such services. Expenses paid or incurred by the taxpayer in connection with the performance of services in excess of the payment received are allowed as a charitable contribution deduction.

A qualified volunteer emergency response organization is any volunteer organization which is organized and operated to provide firefighting or emergency medical services. Effective for tax years beginning after December 31, 2007, and before January 1, 2011

 

 

Surviving Spouse Home Sale Exclusion

Taxpayers who sell a principal residence within two years of the death of their spouse may exclude up to $500,000 of gain under Sec. 121 provided the ownership and use tests are met prior to death.

The two-year period begins on the date of death and ends two years after that date.

Effective for sales and exchanges after December 31, 2007

 

On December 26, the President signed into law the Tax Increase Prevention Act of 2007 (H.R. 3996). The Act provides for a one-year patch of the AMT for 2007 but does not offset the revenue cost with revenue raising provisions. Due

 

On December 26, the President signed into law the Tax Increase Prevention Act of 2007 (H.R. 3996). The Act provides for a one-year patch of the AMT for 2007 but does not offset the revenue cost with revenue raising provisions. Due to the late timing of the AMT patch legislation, many tax professionals are wondering how it will impact the 2008 filing season. NATP had previously been told that the IRS would need seven weeks to program their systems to accept returns once the AMT patch was signed into law. This pushes back the start of filing season, and the IRS's readiness to accept returns, to mid-February. The IRS has indicated that they will post revised copies of the eleven tax forms impacted by the AMT legislation to  ww.irs.gov within 72 hours after the AMT patch is signed into law. NATP is monitoring this situation and will post additional information here as it becomes available.

The IRS announced in IR-2007-209 that the late passage of the AMT patch will not impact their ability to file early in the season, beginning in mid-January. However, approximately 3 to 4 million taxpayers will be impacted and will not be able to file until February 11. The delay is the result of the system programming changes that need to be made at IRS to process returns that have any of the following forms to submit with their return:

 

1. Form 8863, Education Credits.

2. Form 5695, Residential Energy Credits.

3. Form 1040A's Schedule 2, Child and Dependent Care Expenses for Form 1040A filers.

4. Form 8396, Mortgage Interest Credit.

5. Form 8859, District of Columbia First-Time Homebuyer Credit.

 

The Tax Increase Prevention Act of 2007 (H.R. 3996) provides for the following AMT changes:

 

The AMT exemption amounts before phase-out for 2007 for individuals are:

• $66,250 for married individuals filing jointly and surviving spouses

• $44,350 for unmarried individuals; and

• $33,125 for married individuals filing separately

 

This is a temporary fix only. Without future Congressional action, the AMT exemption amounts for individuals in 2008 will revert to 2000 levels. In addition, personal nonrefundable credits may offset AMT and regular tax. For tax years beginning in 2007, the combined total of the following credits is limited to the sum of: (1) regular tax liability reduced by the foreign tax credit, and (2) the AMT:

·         Dependent care credit;

•   Credit for the elderly and permanently and totally disabled;

• Mortgage credit;

• Child tax credit;

• Hope and Lifetime Learning credits;

• Adoption credit;

• Saver's credit;

• Non-business energy property credit for energy-efficient improvements to a principal residence;

• Residential energy efficient property credit for photovoltaic, solar hot water, and  fuel cell property added to a residence; and

• First-time D.C. homebuyer credit.

 

Again, absent future Congressional action, personal nonrefundable credits, with the exception of the child tax credit, adoption credit, and the saver's credit, can't exceed the excess of regular tax liability over tentative minimum tax in 2008.

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