? for Hawaii Preparers with police clients

[Black Bart]

Putting this query back up top

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

for a second shot at it since none of us knew for sure the answer to your question about procedure and maybe a Hawaii preparer will still see it and respond.

Like Burke, Veritas, and others I assumed everybody was covered and I was really surprised to learn that such a ruling about SE existed. Thanks for enlightening us -- and thanks to taxmandan who apparently knew the score also about FICA:

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...

[taxea]

? for Hawaii Preparers with police clients

Burke
Several. Send me an email and I will send you the memo.
taxea@hawaii.rr.com

[Burke]

taxmandan
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 the 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.

What was the Reg he cited for these two?

[taxea]

? for Hawaii Preparers with police clients

Veritas
The memo is from an IRS attorney to HPD prompted by the issue being questioned by HPD. I'm of the opinion that it would apply to any civil service agency that controls their officers overtime.
I had forgotten that several CA agencies could make use of this. Silly me, I'm a retired police sergeant from CA.

As I posted before the response from the IRS is seven pages long...too much to post here but if you have clients that would qualify and want a copy, email me at:
taxea@hawaii.rr.com and I will send you a copy. taxea

[veritas]

I wasn't disagreeing

My point was it seems the payments can be exempted on Sch SE which might lead one to believe you could use Sch C.



A key point here I think "All of this work is assigned directly through the department".

If on the other hand the police officers are exempting these payments as employees it would seem form 2106 would be more appropriate.

I don't have a answer but I found the subject interesting.

Was this a letter ruling? Can you give us a reference?

[taxea]

? for Hawaii Preparers with police clients

Veritas
SE does not apply to HPD officers. That is why I asked Hawaii preparers how they prepare returns for their law enforcement officers. You have to separate HPD from any other civil servant because HPD apparently is the only department that took the time to bring this issue to the IRS and ask for a ruling. And, no, HPD is not subject to medicare because they cover their retirees medical insurance also. taxea

[veritas]

What doesn't apply?

Veritas...doesn't apply to HPD taxea

Maybe I am reading somthing into the excerpt incorrectly.


Also is it not possible that a public employee is exempt from social security but not medicare (hired after 3-31-86)?

[taxea]

? for Hawaii Preparers with police clients

Veritas...doesn't apply to HPD 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.

[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

[Burke]

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

[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

[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

[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.

[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