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QUICK REFERENCE GUIDE FOR PUBLIC EMPLOYERS INTRODUCTION This guide is produced annually by the IRS office of Federal, State and Local Governments (FSLG). It is intended to provide a brief introduction to basic Federal employment tax and reporting information issues for governmental employers. For more detailed information in these areas, see IRS Publication 963, Federal -State Reference Guide. For a general discussion of employment tax responsibilities that apply to all employers, see Publication 15, Employer's Tax Guide. These publications discuss the general rules for reporting wages on Form W-2, Wage and Tax Statement, and on Form 941, Employer's Quarterly Employment Tax Return. They also address requirements for withholding and depositing. This product is intended to focus on the key points facing public employers and point out sources for further information. 1. COMPENSATION Compensation includes any property or services provided in exchange for services. This includes all cash and noncash remuneration for services performed by an employee for an employer, unless specifically excluded. Wages are subject to Federal income tax, social security and Medicare tax, except where the law provides otherwise. Generally, the medium in which the remuneration is paid is immaterial. Compensation may be paid in cash or, for example, services, bonds, inventory, or other forms of property. If services are paid for in a medium other than cash, the fair market value of the goods or services provided in payment is the amount to be included as wages. Employees In general, an employee is anyone who performs services subject to the will and control of the individual or entity paying for the services. Payments to employees in the form of cash, property, services or other benefits are taxable wages, unless excluded by a specific provision of the law. Regulation Section 31.3401(a)-1 indicates that wages include noncash property or services received in exchange for services provided. For a more detailed discussion of how to determine who is an employee, see Publication 963 or Publication 15-A. Employers report taxable wages on Form W-2, Wage and Tax Statement, which is furnished to the employees and transmitted to the Social Security Administration using Form W-3, Transmittal of Wage and Tax Statements. Independent Contractors Any person or business that performs services for compensation and does not meet the control test for employees, discussed above, is an independent contractor. Generally, any payment of $600 or more during a calendar year to an independent contractor should be reported to the payer on Form 1099-MISC, Miscellaneous Income, by January 31 of the following year. For purposes of an information return, an amount is deemed to have been paid 3