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FINANCIAL REQUIREMENTS FOR OFFICERS AND TRUSTEES

FINANCIAL PRESENTATION OUTLINE
Presentation jointly developed by National Secretary-Treasurer Gary Ruffner
and Linda Jardine CPA, Calibre Group CPA
Print in Landscape mode for best results 

INDEX FOR THIS PAGE

GETTING STARTED CHECKLIST FOR NEW LOCALS

• PAYMENTS TO OR FOR OFFICERS AND EMPLOYEES

• CASH ACCOUNTS
     - Petty Cash

• PERMANENT RECORDS AND RECORD RETENTION (DOL tip)
     - Minutes of Meetings
     - Preparing a Budget

• EXPENSES
     - Per Capita owed to the National Union - How to calculate 4&5 week months
     - Taxes other than Payroll

• ANNUAL FILINGS WITH THE IRS AND DOL
     - LM Forms
     - IRS Forms

• PAC (Political Action Funds)
     - State Campaign Finance Rules
     - Federal Elections Commission - Law Resources and Information

• Frequently Asked Questions (FAQ'S) at end of document
     - Q: Can phone service be reimbursed as an expense?
  

PAYMENTS TO OR FOR OFFICERS AND EMPLOYEES

Officers Salaries

• Should be authorized in minutes and included in by-laws
• Should be reasonable for time worked
• Subject to Federal, state and local taxes

Fringe Benefits (Health, Life, AD&D)

• Should be authorized in minutes
• Health and AD&D are non-taxable FB
• Life is non-taxable under group policy
• Group Term Life, > $50,000 taxable

Other Fringe Benefits - Non-taxable - Employers Guide IRS

• Parking - reimburse up to $195/Mo. (proximity)
• Public Transportation- reimburse up to $100/Mo.

Other Fringe Benefits - Taxable

• Automobile (leased or owned by union) - User must track business mileage
• Value of non-business use subject to income and FICA tax
• Definition of business use, any other use is taxable
• IRS value tables include insurance, maintenance and repairs
• Add personal gasoline usage
• Withholding required on personal use value

Allowances (not accounted for) - Taxable

• Should be authorized in minutes
• Withholding required when paid

Per Diem (not accounted for) - Taxable

• Should be authorized in minutes
• In-Town - All taxable
• Out-of-Town - Amounts in excess of Federal rates are taxable (Meal and Incidental expense allowance (M&IE) are defined in IRS publication 1542

Lost Time Payments

• Represents employee salaries
• Subject to withholding
• Reported as wages (W-2, Form 941, etc.)

Consultants vs. Employees

• IRS definition applies (definition)
• What, When, Where, How = Employee
• Consultants get Form 1099
• Employees get Form W-2

Payroll Reporting Requirements

1. Federal

• Quarterly 941’s (Federal and FICA withholding)
  Social Security Administration
• Annual 940 (Unemployment)
• Annual W-3, W-2 (instructions pdf format)

2. State

• State unemployment
• State withholdings

3. Local - as required

• Forms to Have in Your Files
• W-4
• Circular E (IRS Publication 15)
• I-9, Employment Eligibility Verification
• State withholding form

Federal Deposit Requirements

• Total Taxes = Federal W/H, SS W/H, Medicare W/H, SS Match, Medicare Match

Deposit Schedules (Get deposit coupons from bank)

1. Monthly

• Total taxes in Lookback period < $50,000
• Deposit by 15th day of next month

2. Semiweekly

• Total taxes in Lookback period > $50,000
• Deposit taxes w/h on W,T,F by next W
• Deposit taxes w/h on S,S,M,T by next F

Lookback Period - July 1 - June 30

New Employers - Monthly depositor for 1st calendar year
$100,000 or more - next day
< $2,500 at end of quarter, pay with 941 or deposit by 941 due date

Social Security and Medicare Tax for 2007

How to Deposit

• FTD Coupons - take to authorized financial institution - mark coupon carefully (Tax type and tax period)
• Electronic Deposits - required if deposits > $200,000

Union Credit Cards

• Concerns -
• Accountability and abuse
• LM reporting considerations
• Substantiation and documentation
• Invoice or receipt
• Meals and entertainment
  • - Names
  • - Location and date
  • - Business purpose
• Authorized by Board
• Limited distribution
• Mandatory accounting for use
• No personal use - considered as a loan to an officer and reportable as such

CASH ACCOUNTS

• Operating/Checking Account
• Used for all union receipts and disbursements
• Essential that two “Live” signatures be required
• Bank statement and reconciliation
• Received/prepared by non check signer, or
• Received/reviewed by non check signer
• Do not presign checks
• Do not issue checks to “CASH”
• Safeguard all undeposited receipts and unused check stock
• Have bank use month end statement cut-off
• Use bank that returns cancelled checks
• All disbursements should have adequate documentation and original support

Petty Cash

• Used for minor expenditures
• Receipt required for reimbursement
• Should be kept at minimal balance
• Keep in a safe place

Money Market and Savings Accounts

• Used to transfer excess funds from checking account
• Set up account for transfers to/from checking only
• Avoid writing checks on account

PERMANENT RECORDS AND RECORD RETENTION (DOL tip)

• Union officials sentenced for embezzling

Local union charter

• Local union by-laws and constitutions and amendments
• Minute books - all meetings
• Executive Board
• Membership
• Contracts (employer and other)
• Membership records
• Election records
• Annual audits, semi-annual financial reports
• Deeds, property records
• Bonding - arranged by the UWUA National Union and billed to each local - Computation Worksheet - 10% of Assets plus 10% of Receipts

Record Retention

• DOL - 5 years from date of LM filing
• IRS - maximum 6 years from date of filing

Records to be kept

• All accounting records and reports
• Personnel records on terminated employees
• Correspondence

MINUTES OF MEETINGS

• Taken for every meeting
• Date, location, time started and finished
• Attendees
• Official
• Others
• Member sign in sheet
• Approve minutes of previous meeting (date)
• Note items submitted for action
• Indicate action taken

PREPARING A BUDGET

• Should be done annually, 3 months in advance
• Should be approved by Executive Board/members
• Member dues should be based on
• Next year’s per capita dues rate
• Current year’s membership numbers, or better numbers if known
• Expenses should be based on
• Paying all bills currently
• Current year expenses adjusted for
• Increases in salaries, benefits and payroll taxes
• Known activities that aren’t recurring (conferences, rallies, etc.)

EXPENSES

• Should demonstrate that expenses are being incurred “for the membership”
• Do you have the authority to spend for these expenses
• Do you need member approval
• Cannot be solely for benefit of officers or selected members/groups
• Must be reimbursed within a reasonable period of time or become taxable
• Cannot be illegal

Per Capita owed to the National Union

• Due by the Fifteenth of the following month for the previous month
• Calculated by the number of members and 4 or 5 weeks in month. See 4 & 5 Week examples > > > > Example
• In Accordance with the National Constitution
• January 2007 Per Capita $13.97 per member / per month
• January 2006 Per Capita $13.05 per member / per month 
• January 2005 Per Capita $12.17 per member / per month
• January 2004 Per Capita $11.335 (11.33-1/2 cents) per member / per month
• Notification of 2007 Dues & Per Capita Increases

UWUA Per Capita 2007

UWUA Per Capita 2006

UWUA Per Capita 2005

UWUA Per Capita 2004

UWUA Per Capita Policy

Financial Requirements under the UWUA Constitution

TAXES OTHER THAN PAYROLL

• Income Taxes
• Locals covered by IRS group exemption
• Locals subject to tax on unrelated business income activities, such as Advertising
• Rentals on debt financed property
• Logo merchandise - if a profit is made
• Activities that aren’t UBIT (Unrelated Business Income Tax) (Form 990-T)
• Investment income
• Rentals on leased or non-debt financed property
• State/Local Sales and Use Taxes
• Generally (c) 5 organizations are not exempt
• Avoidance of state sales tax results in imposition of use tax, same rate
• Purchasing supplies, equipment, etc. out-of-state for use in-state subject to use tax, if no sales tax paid
• State/Local Other Taxes
• Property
• Other

ANNUAL FILINGS WITH THE IRS AND DOL

Form 990 - Information Return

• No filing if gross receipts are < $25,000 Gross Receipts Test

Use 990-EZ if

• Gross receipts < $100,000, and
• Total assets < $250,000 at year end
• Complete Part IV/V List of Officers, Directors carefully, may not be same as LM
• File on time - 4? months after year end, two 3 month extensions can be requested
• Late filing penalty - $20/day
• Public inspection requirements (not optional)
• Your office, copies must be provided at reasonable charge
• Through IRS

Form LM 2, 3, 4

• LM-4 - Receipts < $10,000
• LM-3 - Receipts $10,000 - < $250,000
• LM-2 - Receipts > $250,000
• Public document
• Due, without extension, 90 days after year end
• Reporting of payments to officers and employees, read directions

Federal PAC Fund (SSF) (Federal Election Campaign Act)

• Contributions to fund must be voluntary
• Contributions can only be solicited from members
• “Fundraisers” subject to 1/3 rule
• General fund purchases raffle prize for $300 (cannot exceed 1/3 sales)
• Raffle ticket sales = $600 - Massachusetts does not allow raffles for State PAC committees.
  - 1/3 of ticket sales = $200
  - PAC Fund owes General Fund $100
• Registration of 50/50 raffles - Register with State Lottery Commission or appropriate state department. Massachusetts does not allow raffles for state PAC committees.
• Affiliation Rules - National COPE and Local COPE are affiliated for contribution (both received and disbursed) limitations
• FEC (Federal Elections Commission) filings required
• Interest income subject to tax (Form 1120-POL filed by SSF (Separate Segregated Fund)
• General Fund - Dos and Don’ts
• Can pay PAC administrative expenses
• Illegal to make contributions to Federal candidates
• Can pay for partisan communications to members only to support particular candidate (newsletter, phone banks)
• Can pay for costs of fund raisers
  *Can make contributions to non-federal candidates, but this can result in a 35% tax (Form 1120-POL filed by labor organization)
• May be able to transfer allocated dues money to a state/local PAC to make state/local contributions - See State Campaign Finance Rules
• State/Local PAC Fund (For State and Local Candidates)
• State PAC funds (See State Campaign Finance Rules) may need to become another SSF (Separate Segregated Fund), do not commingle PAC funds with General Fund
• PAC funds require a separate bank account. Some State PAC funds may require an additional segregated bank account (like Massachusetts).
• Requires registration and filings with state/local offices based on State’s plan
• Campaign Finance Act ~ Campaign Finance Law Resources
• Know your state and local CFA rules - State Campaign Finance Rules

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DEFINITIONS

What are Employees?
Employee status under common law: - - Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that This chapter discusses expenses you can deduct for local business transportation. This includes the cost of transportation by air, rail, bus, taxi, etc., and the cost of driving and maintaining your car.

Local transportation expenses include the ordinary and necessary costs of all of the following (non-taxable)

• Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Tax home is defined in chapter 1.
• Visiting clients or customers.
• Going to a business meeting away from your regular workplace.
• Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area. you have the right to control the details of how the services are performed.

Commuting expenses. You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.

I-9 Employment Eligibility Verification - -You must verify* that each new employee is legally eligible to work in the United States. This will include completing the Immigration and Naturalization Service (INS) Form I-9, Employment Eligibility Verification. You can get the form from INS offices. Contact the INS at 1-800-755-0777 for further information.

*You must verify that the employee is either a U.S. citizen or an alien who can legally work in the United States and then complete the employer part of the form. Keep the completed form for your records and reverify the employee's work authorization if and when necessary as indicated on the form. You must make the form available for review upon notice from an authorized U.S. Government official. Do not submit it to the IRS, INS, or to any other local, state, or federal government entity.

Standard meal allowance. The standard meal allowance (also referred to as the limit on meals and incidental expenses (M&IE rate)) for most small localities in the United States is $35 after October 1, 2002. However, the standard meal allowance is higher for most major cities and many other localities in the continental United States. See Publication 1542, Per Diem Rates. (Check revision dates on web links)

Threshold for deposit requirement is $2,500. For tax return periods beginning January 1, 2002, if your tax liability for the return period (line 13 for Form 941 or line 4 for Form 945) is less than $2,500, you are not required to make deposits and may pay the taxes with the return. See section 11 for a complete discussion of the deposit rules. For quarterly returns (e.g., Forms 941) and January 1, 1999, for annual returns (e.g., Form 945). The threshold change does not apply to Federal unemployment (FUTA) tax deposit requirements. Lookback period - Your deposit schedule for a calendar year is determined from the total taxes (not reduced by any advance EIC payments) reported on your Forms 941 (line 11) in a four-quarter lookback period. The lookback period begins July 1 and ends June 30 as shown in Table 1 below. If you reported $50,000 or less of taxes for the lookback period, you are a monthly schedule depositor; if you reported more than $50,000, you are a semiweekly schedule depositor. (Internet link)

The social security wage base for 2007 is $97,500 There is no wage base limit for Medicare tax. The tax rate remains 6.20% for social security and 1.45% for Medicare tax. The employer tax rate for social security is also 6.20% (12.4% total. 

UBIT (Unrelated Business Income Tax): Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the performance by the organization of its exempt purpose or function except that the organization needs the profits derived from this activity. An exempt organization that has $1,000 or more gross income from an unrelated business must file Form 990-T, Exempt Organization Business Income Tax Return. (Internet link for more detailed explanation)

Expenses reimbursed within a reasonable period of time, or taxable: A reasonable period of time depends on the facts and circumstances. Generally, it is considered reasonable if your employees receive the advance within 30 days of the time they incur the expense, adequately account for the expenses within 60 days after the expenses were paid or incurred, and they return any amounts in excess of expenses within 120 days after the expense was paid or incurred. Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. 

Expenses become taxable if not reimbursed within a reasonable period of time: If the expenses covered by this arrangement are not substantiated or amounts in excess of expenses are not returned within a reasonable period of time, the amount is treated as paid under a nonaccountable plan (definition of an accountable plan). This amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period.

You must file IRS form 990 if your annual gross receipts are normally more than $25,000. NOTE: Penalties can be assessed for noncompliance with payroll tax requirements and form 990. Form 990 ~ Form 990 tax filing info for exempt organizations due by the 15th day of the 5th month following the tax year. $25,000 gross receipts test. An organization's gross receipts are considered normally to be $25,000 or less if the organization is: I. Up to a year old and has received, or donors have pledged to give $37,500 or less during its first tax year; II. Between 1 and 3 years old and averaged $30,000 or less in gross receipts during each of its first 2 tax years; or III. Three (3) years old or more and averaged $25,000 or less in gross receipts for the immediately preceding 3 tax years (including the year for which the return would be filed).

Petty Cash Fund: All cash should be promptly deposited in a checking account, Also all withdrawls are usually made by issuing checks. The Petty Cash Fund is sometimes used for small amounts which must be paid out, perhaps for postage stamp, postage due on a letter or package or other expenses for which drawing a check would not be practical.

• Payment to establish and/or to maintain the fund should be made payable to Petty Cash from the Unions checking account with two signature authorization.
• One person should be held responsible for the petty cash fund
• A record of each payment from the account should be kept with a petty cash voucher showing the person to whom it was paid, the reason, the date, the amount, and if possible the signature of the person to whom it was given
• Replenish the fund with a check payable to petty cash, the amount should be equal to the disbursments (vouchers and disbursements + cash balance must total the original amount of the fund)

Sample Petty Cash Voucher

Sample Check Payable to Petty Cash

PER CAPITA CALCULATIONS YEAR 2007

PER CAPITA CALCULATIONS YEAR 2007

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FAQ'S - Frequently Asked Questions

Q: Can phone service be reimbursed as an expense?
A: To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules.
1. Your expenses must have a business connection -- that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
2. You must adequately account to your employer for these expenses within a reasonable period of time.
3. You must return any excess reimbursement or allowance within a reasonable period of time.
"Adequate accounting" and "returning excess reimbursements" are discussed later.

An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.

The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.

You receive an advance within 30 days of the time you have an expense.
You adequately account for your expenses within 60 days after they were paid or incurred.
You return any excess reimbursement within 120 days after the expense was paid or incurred.
You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

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