As the 2022 tax season comes to a close, self-directed stakeholders may be curious about the role the Financial Management Service (FMS) provider plays in filing taxes and assisting in managing their self-directed services within a Fiscal Employer Agent (F/EA) program.
First, its important to know that when a self-directing employer enrolls with the FMS, there are certain forms collected that allow the FMS to perform essential duties related to taxes. Here is an overview of those forms:
SS-4: This document allows Palco to apply for a Federal Employer Identification Number (FEIN) on behalf of the employer. One critical distinction when applying for this FEIN is ensuring it is classified as a Home Care Service Recipient (HCSR) FEIN. This specific type of FEIN is non-income generating, meaning the budget funds used to pay for services will never be misconstrued as income to the self-directing Participant and/or Employer. It is important for Palco know if you have been issued an EIN for any other business.
2678: This document appoints Palco as the agent responsible for filing returns and making payments on behalf of the self-directing employer for the HCSR FEIN. Without this, Palco cannot communicate and complete responsibilities with the IRS.
8821: This form allows Palco to receive communications and critical statements related to managing the tax accounts on behalf of the self-directing Participant and/or Employer.
Employers should always complete the forms provided specifically by the enrollment team with certain key information pre-filled. This ensures that nothing is missed and that all communications will be sent smoothly to the correct individuals.
When registering for tax accounts, Palco will always record the mailing address and phone number for any notices or communications as the Palco contact information. This is critical to ensure that any statements from the IRS or notices are sent to Palco to address. If a self-directing employer ever receives communication from the FMS that payments are required or their account is delinquent, they should reach out and send a copy to Palco right away. Often, it is likely due to a clerical error made by the State or Federal agency and can be quickly addressed by the Palco tax team. Self-directing employers should never use their own money for the purpose of filing taxes related to their self-directed services.
Each state will also have specific forms required that allow the FMS to communicate with and manage state tax obligations. You can review your state-specific enrollment packet or speak to a Palco enrollment specialist if you have questions about these.
Self-directing workers will complete a Payroll Information Worksheet at the time of enrollment and should always update it if there are changes in their statues. Completing this form accurately will ensure that taxes and benefits are calculated properly. This form should be reviewed periodically for accuracy. Failure to notify Palco of any changes may result in a tax bill to you or other employment matters to your employer.
Here is an overview of Exclusions vs. Exemptions:
The FMS is responsible for filing returns and making payments on behalf of the self-directing employers. Quarterly, Palco files the IRS Form 941 (Employer Quarterly Federal Tax Return). This filing is completed in the aggregate for all Participants/Employers served by Palco and includes a Schedule R. Annually, Palco files the IRS Form 940 (Employer Annual FUTA Return) which reports on Federal Unemployment Taxes and is filed in the aggregate for all Participants/Employers served by Palco. In January of each year, Palco will furnish W-2 forms to every self-directing worker who received payments in the previous calendar year on behalf of the employer. This ensures that all wage reporting is accurate and allows the worker to file their individual tax return.
States will also have quarterly and annual tax filing requirements for things like State Unemployment (SUTA), State Income Tax (SIT), Local Taxes, and W-2 reporting. Palco will handle these state-specific requirements as applicable for each employer.
While Palco is responsible for filing the taxes related to the HCSR, we do not offer tax advice or file any taxes on behalf of the workers employed by the Participant/designated representative. It is important that workers handle their own tax requirements and speak to a tax professional if they have questions about any exemptions or exclusions for which they feel they may qualify . Palco will monitor certain tax thresholds mandated by the IRS such as the minimum earning requirements and refund money to workers when appropriate. For example, in 2022 if a worker earns $2,400 or less (threshold changes from year to year), the SS and Medicare wages are not reported on the W2 (boxes 3,4,5, and 6 will be blank) and any FICA withholding will be refunded.
by Stephanie Gallagher
Assistant FMS Director