? for Hawaii Preparers with police clients

[taxea]

I am curious as to how you report the 1099 special duty income for your police clients.
Do you put the income on Line 21 and the expenses on 2106 lumped in with the rest of their "on duty" expenses?
How do you adjust the return to remove SE tax if you do a SCH C?
Here is why I ask:
HPD has a memo from the IRS that states (in summary) that police officers are not subject to SE tax, therefore because the special duty is all sanctioned by the police department then the client should not be subject to SE tax on the special duty income.

Your thoughts on this...taxea

[Burke]

Well, the reasoning does not make much sense to me, but if they really have an IRS ruling on it that is is not subj to SE tax, then I would put it on line 21. I never heard of salaried police officers not being subject to SE tax, nor have I ever been exposed to an instance where this was the case. What cite in the code are they offering?

[MAMalody]

I would also contact HPD HR firectly to get a copy of the ruling.

[veritas]

Just curious

The W2 for the officer's refelct no Social Security tax witheld?

[taxea]

? for Hawaii Preparers with police clients

As I first stated this is a memo from the IRS to HPD regarding the extra duty pay that officers get when they work special duty overtime. Most of the companies that hire the officers provide a 1099 at the end of the year.
All of this work is assigned directly through the department. The officers, in most instances, are in uniform and use their duty vehicle. This extra duty is sanctioned by HPD.
And, yes, I do have a copy of it. Police officers, and teachers in Hawaii do not pay SS or Medicare.
I was trying to determine how other Hawaii tax preparers with HPD clients handle this.
Do you enter the 1099 income on line 21 and all of the expenses on the 2106 or do you prepare a Sch C, allot the expenses between 2106 and Sch C, then adjust SE to delete the SE tax?
taxea

[MAMalody]

I would do a Schedule C and adjust the Schedule SE unless, somehow, the taxes are being paid and reflected on the W-2. If that is the case I would use line 21 and F2106. I simply can't imaging the IRS saying this income is not subject to SS and M/Care at all.

[Burke]

I simply cannot imagine it either. There is no reasoning whereby income for services would not be subject to SS/MC taxes in one particular state and not another. Again, are you saying their regular W-2"s do not reflect FICA taxes? And this "memo".....who is it from, and what does it say? Can you quote verbatim here?

[thomtax]

I'm just working from memory, but isn't there something on the books where, since they are covered by a different retirement system working for government entities, these deductions are not made from the employee paycheck.

Of course, as usual, I reserve the right to have a faulty memory.:-)

[S T]

Police Officer

I have a client that is a police officer in Calif, and his W-2 only shows wages in box 1, no deductions for FICA and MCare. Retirement is under a different retirement system.

Sandy

[Burke]

Teachers and police officers are employed by localities, not the federal government, so they are not under the civil service pension system for federal employees. The only persons I know of not subject to SS taxes are railroad employees who are covered under RRRB plans and those taxes are withheld from their pay in lieu of SS taxes. I still cannot figure out why these Hawaii employees would come under this ruling and not all states, since most have some sort of state pension plan for these particular persons.

[taxmandan]

Not all government agencies are covered by FICA

I simply cannot imagine it either. There is no reasoning whereby income for services would not be subject to SS/MC taxes in one particular state and not another. Again, are you saying their regular W-2"s do not reflect FICA taxes? And this "memo".....who is it from, and what does it say? Can you quote verbatim here?

Government entities can opt out of FICA, if they offer a 'comparable' retirement plan. Almost the entire state of Washington, local and state, are exempt because of their own program. And yes, police and teachers in Hawaii are exluded. Side note: this extra duty is mandated by HPD for their officers, they have to work a minimum number of hours every month, in uniform with their personal patrol cars. Officers have to supply their own cars, and get a vehicle reimbursement. It is strange that the IRS would agree that this is 1099MISC income.

Daniel

[taxea]

? for Hawaii Preparers with police clients

taxmandan
The only incorrect comment in your post is that the officers are mandated to work a certain number of hours.
If you are referring to the special duty, it is not a requirement, it is considered special assignment sanctioned by HPD and officers sign for the jobs through the HPD. No officer is required to do this work. It is overtime and they supplement their income when they do this work.
The memo is from an IRS attorney to HPD. It is 7 pages long so rather than post it I will give you the gest of it.
The IRS attorney cites each regulation that was used to conclude the following:
Because HPD is in total control of this work, they are considered the employer.
Because officers are not subject to FICA and FUTA as employees of HPD they are not subject to FICA and FUTA for special duty.
The IRS gave HPD options for handling of income withholding and HPD apparently worked out with the businesses wanting the officers services that these businesses would send 1099's for each officer to HPD and the 1099's would be distributed by HPD to the officer.
Since the work goes directly through HPD and the officers are in uniform, in a patrol car and subject to HPD rules and regulations the expenses qualify under 2106. taxea

[Burke]

Wow, it goes to show you....just when you think you know it all.....

[taxea]

? for Hawaii Preparers with police clients

Not to worry Burke....the politics in Hawaii suck! This may be paradise and I wouldn't want to live anywhere else but after experiencing CA laws and coming back home I am truly amazed at the "head in the sand" atttitude of the powers that be.

The majority here will probably elect Obama president just because he grew up here, not at all based on anything he has or doesn't have to offer. This is just an example. taxea

[veritas]

Look at instrucions for Sch SE

Income and Losses Not Included in net earnings for From Self-Employment.

1. Salaries, fees, etc., subject to social
security or Medicare tax that you received
for performing services as an employee, in-
cluding services performed as a public offi-
cial (except as a fee basis government
employee as explained in item 8 under
Other Income and Losses Included in Net
Earnings From Self-Employment) or as an
employee or employee representative
under the railroad retirement system.