© 2023 American Payroll Institute, Inc. APA Asks IRS to Coordinate With DOL on Worker Classification The APA Government Relations Task Force Federal Issues Subcommittee asked the IRS to better coordinate definitions of employee and independent contractor with the U.S. Department of Labor (DOL). The APA request comes after the IRS’s Small Business/Self-Employed Specialty Employment Tax signed a Memorandum of Understanding (MOU) for Employment Tax Referrals with the DOL’s Wage and Hour Division to share information regarding misclassification on December 14, 2022. Payroll professionals would prefer that the DOL and IRS also share information on compliance and help employers understand the regulations, APA said. While the APA recognizes that the DOL and IRS have different jurisdictions and thresholds for violations and penalties, the definitions of employee and independent contractor should not differ. Yet, the language used by both agencies does not match. Ideally, to achieve compliance, the definitions used by both agencies should be close to the same. Conflicting definitions The APA commented on the DOL’s proposed rule that would modify how to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (87 F.R. 62218, 10-13-22 see “Inside Washington” for January 2023). In these comments, the APA said it is concerned with the conflicting definitions of employee and independent contractor between the proposed DOL rules and the common law definition used by the IRS. Currently, employers and both agencies use different tests to determine whether an individual is an employee or independent contractor. In some situations, these tests can yield different results for the same individuals, APA said. While aspects of the proposed DOL regulations overlap with the IRS, the definitions are not the same and can leave employers in a gray area. Details from the MOU The MOU creates a process for referrals from the DOL to the IRS on misclassification. Specifically, the MOU’s purpose is to share information between the IRS and DOL “to assist in the identification of emerging and ongoing employment tax compliance issues related to misclassification.” The agencies intend to streamline the process for investigating and penalizing employers that allegedly misclassify their employees as independent contractors. The MOU establishes the terms of agency cooperation however, Appendix B, U.S. Department of Labor Standardized Referral Form and DOL/IRS Decision Tree, refers to the partnership as the Joint Worker Misclassification Initiative. Appendix B contains a decision tree for what type of information will be shared and when. The MOU shows the IRS’s intent to target employers that lack a good faith reason for worker misclassification and, thus, are more likely to be assessed substantial penalties. For example, the MOU states the IRS only wants DOL referrals that involve a determination of worker status. Other referral criteria include that the employer is still operating and has an annual dollar volume of sales that exceed $500,000. The agencies are using the term Tier 1 to identify the cases that will be referred to the IRS. Employers subject to a Tier 1 referral cannot claim protection under §530 of the Revenue Act of 1978, which offers a safe harbor from tax liability if certain criteria are met. APA Meets With U.S. Department of Education on Loan Garnishments In January, APA met with the U.S. Department of Education about student loan garnishments. The ED told APA that it was considering reforms to some of its debt collection practices for student loan borrowers who default on their loans. One piece of the reform is improving garnishment practices. Resuming garnishments after the pause One problem with garnishment processes emerged during the COVID-19 pandemic. Despite pausing student loan repayments during the pandemic, some garnishments continued. On November 22, 2022, the ED announced an extension of the federal student loan relief until issues concerning the student loan forgiveness program are settled by the U.S. Supreme Court (ED, Press Release, 11-22-22 see PAYROLL CURRENTLY, Issue 12, Vol. 30). During the meeting, the ED said that loans will return to repayment about two months after the U.S. Supreme Court has reached a decision. The ED process will include a 90-day safety net period in which borrowers who do not February 2023 A Supplement to Payroll Currently, Issue 2, Volume 31
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