Merger & Acquisition FAQ – February 2015

Q: Is an S corporation required to pay quarterly estimated tax? A: An S corporation must make installment payments of estimated tax if the total of the following taxes is $500 or more: 1) built-in gains, 2) The excess net passive-income tax, and 3) The investment credit recapture tax. Q: If an employee claims more than 10 allowances on their Form W-4, does the employer have to report this to the IRS? A: In the past, employers routinely had to send the IRS any Form W-4, claiming more than 10 allowances or claiming complete exemption from withholding if $200 or more in weekly wages was expected. The requirement no longer exists. Q: How do you determine if a worker is an employee or an independent contractor? A: There are three basic categories of factors that are relevant to determining a worker’s classification:

• Behavioral control (whether there is a right to direct or control how the worker does the work),
• Financial control (whether there is a right to direct or control the business part of the work), and
• Relationship of the parties (how the business and worker perceive the relationship).

If all three elements are substantially met, generally the worker is an employee. If not, the worker can be classified as an independent contractor. But be careful, you are liable for unpaid withholding taxes if you get this classification wrong! By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors