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In the labyrinth of financial planning and tax-saving strategies, Health Savings Accounts (HSAs) emerge as a multifaceted tool that remains underutilized and often misunderstood. An HSA is not just a way to save for medical expenses; it’s also a powerful vehicle for retirement savings, offering unique tax advantages. This article delves into who qualifies for an HSA, the tax benefits it offers, and how it can serve as a supplemental retirement plan.

Qualifying for a Health Savings Account – At the heart of HSA eligibility is enrollment in a high-deductible health plan (HDHP). As of the latest guidelines, for the tax year 2024, an HDHP is defined as a plan with a minimum deductible of $1,600 for an individual or $3,200 for family coverage. The plan must also have a maximum limit on the out-of-pocket medical expenses that you must pay for covered expenses, which for 2024 is $8,050 for self-only coverage and $16,100 for family coverage. But having an HDHP is just the starting point. To qualify for an HSA, individuals must meet the following criteria:

These criteria ensure that HSAs are accessible to those who are most likely to face high out-of-pocket medical expenses due to the nature of their health insurance plan, providing a tax-advantaged way to save for these costs.

It should also be noted that unlike IRAs, 401(k)s and other retirement plans, it is not necessary to have earned income to be eligible for an HSA.

Tax Benefits of Health Savings Accounts – HSAs offer an unparalleled triple tax advantage that sets them apart from other savings and investment accounts:

The combination of these benefits makes HSAs a powerful tool for managing healthcare costs now and in the future.

HSAs as a Supplemental Retirement Plan – While HSAs are designed with healthcare savings in mind, their structure makes them an excellent supplement to traditional retirement accounts like IRAs and 401(k)s. Here’s how:

To maximize the benefits of an HSA as a retirement tool, consider paying current medical expenses out-of-pocket if possible, allowing your HSA funds to grow over time. This strategy leverages the tax-free growth of the account, potentially resulting in a substantial nest egg for healthcare costs in retirement or additional income for other expenses.

Establishing and Contributing to an HSA – Opening an HSA is straightforward. Many financial institutions offer HSA accounts, and the process is like opening a checking or savings account. An individual can acquire a Health Savings Account (HSA) through various sources, including:

When choosing where to open an HSA, it’s important to consider factors such as fees, investment options, ease of access to funds (e.g., through debit cards or checks), and customer service.

Once established, you can make contributions up to the annual limit, which for 2024 is $4,150 for individual coverage and $8,300 for family coverage. Individuals aged 55 and older can make an additional catch-up contribution of $1,000.

What Happens If I Later Become Ineligible – If you have an HSA and then later become ineligible to contribute to it—perhaps because you’ve enrolled in Medicare, are no longer covered by a high-deductible health plan (HDHP), or for another reason—several key points come into play regarding the status and use of your HSA:

Therefore, while you can no longer contribute to an HSA after losing eligibility, the account remains a valuable tool for managing healthcare expenses.

Health Savings Accounts stand out as a versatile financial tool that can significantly impact your tax planning and retirement preparedness. By understanding who qualifies for an HSA, leveraging its tax benefits, and recognizing its potential as a supplemental retirement plan, individuals can make informed decisions that enhance their financial well-being.

Whether you’re navigating high-deductible health plans or seeking additional avenues for tax-efficient savings, an HSA may be the key to unlocking substantial long-term benefits.

Call us at Cray Kaiser at (630) 953-4900 to discuss your situation and how an HSA might be beneficial for you.  

Jason Hofferica

CPA, CVA | Manager

Implementing new accounting standards can often be a daunting task for businesses, requiring significant adjustments to their financial reporting processes. One such change came in February 2016, when the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)”. This update, effective for annual reporting periods beginning after December 15, 2021, marked a significant shift in how companies must account for leases. As businesses navigate these new requirements, understanding the nuances of ASU 2016-02 became crucial in ensuring compliance and accurate financial reporting.

In this ASU, lessees are required to recognize a right-of-use asset and associated lease liability on their balance sheet for most operating leases, with exemptions provided to those operating leases with an initial lease term of twelve months or less.

The reasoning behind this ASU is that when entities enter operating leases, they have a “right-of-use” asset and liability with this agreement that prior to this ASU, would have only needed to be disclosed in the footnotes to the financial statements in the form of future payments.

What this pronouncement requires is that the operating right of use assets and lease liabilities are recorded on the date of lease commencement based on the present value of the lease payments over the lease term. Further, over the course of agreement, both the asset and the liability are amortized, which is calculated based on the discount rate. The pronouncement allows for using the risk-free or incremental borrowing rate, depending on the entity’s policy election, that most closely aligns with the terms of the lease agreement at inception.

Think of it as the entity purchasing a tangible asset and financing by obtaining a loan, even though no such loan exists. Therefore, cash paid on the lease will no longer be solely categorized as a lease expense in accordance with Generally Accepted Accounting Principles, but rather a combination of the cash paid, periodic lease expense, and the amortization of the right-of-use asset and right-of-use-liability.

If the entity is subject to financial covenants with a financial institution, this pronouncement may affect the financial ratios to stay in compliance. It is important to discuss with the financial institution and to adjust any covenant calculations to remove its impact from these calculations.

The bad news is regarding the increased burden of implementing ASU 842, especially considering that the resulting change, usually is a marginal change to the entity’s bottom line as it mostly impacts the balance sheet. The good news is that we at Cray Kaiser,  understand the ASU and its calculations and can assist with consulting and calculations to navigate this new standard. You can contact us here or call us at (630) 953-4900.   

Carl Thomas

CPA | Manager

2024 ushers in significant regulatory relief for Illinois nonprofit organizations, thanks to Public Act 103-0121. This new legislation raises the contribution revenue thresholds that determine the filing requirements for nonprofits in Illinois, potentially reducing the financial obligation for smaller organizations.

New Contribution Revenue Thresholds

The changes to the contribution revenue thresholds for Illinois not-for-profit organizations are as follows:

Effective Date and Applicability

The changes brought by Public Act 103-0121 apply to organizations with an initial due date (without considering any extension) occurring after January 1, 2024. Consequently, this requirement applies to organizations with a fiscal year ending on June 16, 2023, and later.

Cost Savings and Efficiency

One of the advantages of this regulatory update is the potential cost savings for nonprofits. Reviewed financial statements typically cost less than audited financial statements. This reduction in expenses could be a substantial benefit for smaller organizations operating on tight budgets.

However, nonprofits should consider the long-term implications of switching from audits to reviews. If an organization has decreased revenue in the current year but anticipates revenue growth in the future, it might be more cost-effective to continue with audits despite the immediate savings from reviews. This is especially true if grantors or financing arrangements require audited financial statements. Initial or resumed audits require more setup time and effort from both clients and auditors, so maintaining continuity with audits could lead to greater efficiency and reduced future workload.

Proactive Financial Management

As fiscal year-end approaches, organizations should begin to review their year-to-date activity. A proactive review will help in deciding what if any services are needed. Ensuring that books and records are in order will facilitate efficient and effective services from a CPA firm. Monthly bank reconciliations completed through the fiscal year-end date are a good starting point. These reconciliations are a good indicator to CPAs of an organization’s readiness for an audit.

If you are a nonprofit and want to learn more about how Public Act 103-0121 may impact you, please reach out to the CK nonprofit team at (630) 953-4900.

Karen Snodgrass

CPA | CK Principal

Here we are again, on the precipice of another round of significant tax changes. The last round of significant tax law changes occurred in 2018, with the Tax Cuts and Jobs Act (TCJA). Most of the tax changes made by the TCJA are not permanent and will expire (sunset) after 2025. With little time before December, 2025, we are encouraging all to review your 2024 and 2025 tax planning – NOW!

We’ll highlight some of the significant provisions deserving of everyone’s attention.

Estate Tax Exclusion – TCJA significantly increased the inflation-adjusted estate and gift tax exclusion. Before TCJA, the estate and gift tax exclusion was $5.49 million (meaning, estates with more than that level of assets faced the prospect of federal estate tax). Post TCJA, the 2024 exemption is dramatically higher at $13.61 million.

However, with the sunset of the TCJA, the exemption would revert back to pre-TCJA levels. Many estate planning professionals are advising clients to act now to reduce their taxable estate, usually through gifts to family members. Especially notable is t the IRS has indicated they will not challenge this strategy. According to the IRS, “Individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.”

With the additional clarification of the lifetime gift exclusion availability for future estates, wealthy donors should strongly consider ensuring that their gifting strategy maximizes future tax benefits.

Corporate Tax Rate/Qualified Business Income (QBI) Deduction – As part of TCJA, Congress changed the tax rate structure for C corporations to a flat rate of 21% instead of the former graduated rates that topped out at 35%. If allowed to sunset with TCJA, businesses organized as C corporations will face significant tax increases. In fact, the after-tax rate of corporate distributions will well exceed 50%.

Needing a way to equalize the rate reduction for all taxpayers with business income, Under the TCJA, Congress came up with a new deduction for businesses that are not organized as C corporations. This resulted in a new and substantial tax benefit for most non-C corporation business owners in the form of a deduction that is generally equal to 20% of their qualified business income (QBI). Notably for personal service industries (lawyers and accountants for example), the QBI was limited.

Given the potential increase in C corporation tax rates and the elimination of the QBI deduction, businesses may need to revisit their tax structure after 2025.

SALT Limits – SALT is the acronym for “state and local taxes”. TCJA limited the annual SALT itemized deduction to $10,000, which primarily impacted residents of states with high state income tax and real property tax rates, such as New York, New Jersey, and California. Several states have developed somewhat complicated work-a-arounds (called the pass-through entity tax, or PTET) to the limits that benefit taxpayers who have partnership interests or are shareholders in S corporations. The future of the PTET is uncertain with an expired TCJA.

Standard Deductions – The standard deduction is the amount of deductions you are allowed on your tax return without itemizing your deductions. The standard deduction is annually adjusted for inflation. In 2018, the TCJA just about doubled the standard deduction which generally benefited lower income taxpayers and retirees. The increased standard deductions also meant fewer taxpayers claimed itemized deductions – roughly 10% of filers now itemize versus 30% before TCJA.

Personal & Dependent Exemptions – Prior to 2018, the tax law allowed a deduction for personal and dependent exemption allowances. One allowance was permitted for each filer and spouse and each dependent claimed on the federal return. Under current law, there is no dependency exemption. It’s possible that in 2026, the tax benefits related to personal exemptions will come back into play.

Child Tax Credit – Prior to 2018 the child tax credit was $1,000 for each child below the age of 17 at the end of the year. With the advent of TCJA the child tax credit was doubled to $2,000 for each child below the age of 17 at the end of the year. This more than made up for the loss of a child’s personal exemption deduction for lower income families.

Home Mortgage Interest Limitations – Prior to the passage of TCJA, taxpayers could deduct as an itemized deduction the interest on $1 Million ($500,000 for married taxpayers filing separate) of acquisition debt and the interest on $100,000 of equity debt secured by their first and second homes. With the passage of TCJA, the $1 Million limitation was reduced to $750,000 for loans made after 2017 and any deduction of equity debt interest was suspended (not allowed). A return to pre-TCJA levels will tend to benefit higher income taxpayers with more expensive homes and higher mortgages.

Tier 2 Miscellaneous Deductions – TCJA suspended the itemized deduction for miscellaneous deductions for tax preparation and planning fees, unreimbursed employee business expenses, and investment expenses. Most notable of these is unreimbursed employee expenses which allowed employees to deduct the cost of such things as union dues, uniforms, profession-related education, tools and other expenses related to their employment and profession not paid for by their employer. Investment expenses included investment management fees charged by brokerage firms. These types of expenses were allowed only to the extent they totaled more than 2% of the taxpayer’s adjusted gross income. These expenses are currently not deductible.

Tax Brackets – TCJA altered the tax brackets and although most taxpayers benefited, higher income taxpayers benefited the most with a 2.6% cut in the top tax rate. A return to the pre-TCJA rates would have the largest negative effect on higher income taxpayers.

The tax changes to occur with the sunset of TCJA will be dramatically impacted by the November 2024 elections.

Depending upon your circumstances, these changes may impact your long-term planning such as your business structure, estate planning, buying a home, retirement planning, and other issues. It’s going to be an interesting year, for sure, and best to get planning now. Please contact Cray Kaiser at (630) 953-4900 with any questions.

In this video, Nick Ashmore, an in-charge accountant at Cray Kaiser, share his experiences and insights about working at the firm. He discusses the diverse opportunities, the supportive and collaborative work environment and the personalized growth plans that help team members explore different areas of interest.

Transcript:

My name is Nick Ashmore. My current position at Cray Kaiser is an in-charge accountant and I am a hybrid between the accounting services and the tax departments.  First off, there are a lot of opportunities and they want you to work on what you want to work on. So as I mentioned for the first years or people just coming into this firm they have an idea of what they want to work on or even if they don’t have an idea just try everything and Cray Kaiser will make that possible for them so that you can kind of really figure out what you’re good at develop a niche if that’s what you want to focus on and you could grow from there.

Every time I have an annual review or as we call them now growth plans we set goals for the year that you want to meet and you know you have the standard like billable hours and things like that but then you get to throw some oddballs in there and for me I usually try to include something I haven’t done before. So for instance this year is working on a nonprofit. I know that the nonprofit accounting is a little bit different. I have never done it. Maybe I’ll like it, maybe I won’t, but I at least want to try it and have a general understanding of it.

So they do a good job at meeting the things that you want, which in turn helps you grow because they’re doing things that you like to do or are interested in versus things you’re not interested in.

Their expectations of me were very clear but they also made the path to get them very clear. This stuff’s really easy to follow. As I said, I had a lot of different mentors for different challenges I faced. They helped me get over each and every hurdle. It’s very collaborative and I would also say empowering just because everybody wants to help you, you know, you don’t feel beaten up when you don’t know something. You have somebody you can go ask, they’ll sit with you and make time for you to really break it down and learn it. My learning style is not really being told how to do something, but it’s actually doing it with somebody kind of looking over my shoulder, guiding me through it. That’s how I learn. You know, somebody could tell me you just need to do this, this, and this, and I could get that done, obviously, but I wouldn’t fully understand it until I’ve actually taken and start to finish.

In accounting services, we all sit in the same section. That’s like, I guess, my home department, I would say. You know, we’re kind of talking back and forth over the cubicles, running ideas by each other. We all help each other out. We kind of all have our things that we have handled in the past, so when a problem arises with somebody else, you know, we can easily help them. So those are kind of the goals and values we have at Cray Kaiser here and I think it’s very beneficial for everybody.

In Cray Kaiser’s Employee Spotlight series, we highlight a member of the CK team. We couldn’t be prouder of the team we’ve grown and we’re excited for you to get to know them. This month we’re shining our spotlight on Carl Thomas.

GETTING TO KNOW CARL

Carl is an Assurance Manager at Cray Kaiser. His typical engagements include financial statement audits of mid-sized not-for-profit entities and businesses. He has also been involved in many non-audit projects over the years, such as coordinating the budget process, drafting tax levies, ad hoc operational analysis, monthly reporting, ERP systems implementation assistance and more. “You never know what the issue will be when the phone rings,” says Carl.

Carl joined the CK team in April of 2024. He was excited to join CK because of the warm and supportive environment. Carl was most drawn to the growth-mindset shared by the CK team.

Carl received his Bachelor of Science in Accountancy from the University of Illinois at Urbana-Champaign. Reflecting back on his time at the university he said, “The experience was tough and it taught me a lot of valuable lessons about how to be autonomous, how to advocate for myself and how the little things you do every day add up to the big things one day.”

WHY CK?

As someone motivated by a challenge and the feeling of a job well done once a solution is found, Carl enjoys the variety of projects and clients he assists at CK. “No two projects are ever the same,” he shared. Which is just the way he prefers it.

When asked which of CK’s core values mean the most, Carl answered, “Education resonates the most with me.” He believes each individual owes it to themselves and their clients to never stop learning and always embrace new challenges. Carl explained, “CPA’s owe it to the profession to share their knowledge base with junior employees and new CPA’s so that we can help ensure the quality of the profession for generations to come. When we see potential in someone up and coming, we need to treasure and nurture it.”

For the up-and-coming CPA’s and those new to the industry, Carl suggests the first step to being successful is to find a mentor. Getting to know your mentor, observing how they work and learning from them is an invaluable opportunity. “I have had someone like this at the highest points of my career and I have lacked someone like this at the lowest points of my career. I don’t feel that it can be explained away as a coincidence.” 

MORE ABOUT CARL

Do you have a special/hidden talent or hobby?

My hobby is manual-camera black-and-white film photography. I prefer the subdued aesthetic of black and white film over the sanitized and overly vivid digital and phone shots. These photos feel distant and dreamy to me, which is exactly how I like to remember these moments. I have all the equipment and chemicals to process the film. Owning the process from shot to print really gives you a new mindset when you push the shutter button.

What’s your favorite movie or tv show?

My favorite TV show is The Sopranos. James Gandolfini’s mastery of Tony Soprano is unmatched in the history of television. My favorite film is Saving Private Ryan – and not because it’s an action movie. I love this film because Tom Hanks’ character never lost his hope, he never stopped daydreaming, and he never lost his ability to care about people in the midst of the darkness around him.

What’s on your music playlist?

I have diverse music interests! Armor for Sleep, Bcalm & Dontcry, Chihei Hatakeyama, Deftones, Down, Dustin Kensrue, Every Time I Die, Floor, Hammock, Hank Williams Sr., Hank Williams III, The Hope Conspiracy, Hopesfall, Johnny Cash, Led Zeppelin, Apple Music Lo-Fi Chillhop Study Beats Playlist, Magrudergrind, Nasum, New Found Glory, Neil Young, Palms, Paramore, Pinback, Pig Destroyer, The Receiving End of Sirens, The Smashing Pumpkins, Such Gold, Taking Back Sunday, Team Sleep, Terror, Toro Y Moi, 40 Watt Sun, The War on Drugs, Weekend Nachos.

What was your favorite vacation?

My favorite area to go for vacation is the Orange County, California area. From Santa Monica pier to Disneyland, the Getty Museum, Griffith Observatory, the ocean, the mountains, and much more, there is simply an endless amount of iconic activities and beauty to take in. Southern California weather is also near perfect with warm days and cool nights.



Effective July 1, 2024 certain taxing jurisdictions in Illinois have imposed a local sales tax or changed their local sales tax rate on general merchandise sales. The following taxes are affected:

To be in compliance with the new tax rates, you must adjust your point of sale and/or accounting system to ensure that you will collect and pay the correct sales tax effective July 1, 2024. You may need to contact your software vendor to confirm that they will correct their systems to the appropriate tax rate. Remember that even if you under-collect tax, the tax is still due. That means it will be your responsibility to pay the difference.

To verify your new combined sales tax rate (state and local tax) use the Tax Rate Finder and select rates for July 2024.

Who is impacted?

The sales tax rate change will affect anyone collecting sales tax in some cities in Cook County, DuPage County, Kane County, Madison County, McHenry County, Stephenson County and other jurisdictions. To see a full list of all the cities impacted and the new rates, please click here.

What is taxed?

These rate changes do not impact what is and is not subject to sales tax. As a reminder, most sales are subject to both the state sales tax and the locally imposed sales tax.

Note that some jurisdictions may impose and administer taxes not collected by the Illinois Department of Revenue. Contact your municipal or county clerk’s office for more information.

If you have any questions regarding the sales tax rate change, please don’t hesitate to contact Cray Kaiser today or call us at (630) 953-4900.

Nick Ashmore, an In-Charge Accountant at Cray Kaiser talks about his path to becoming an in-charge accountant. He shares about the culture at CK along with everything he learned during his journey.

Transcript:

My name is Nick Ashmore. My current position at Cray Kaiser is an in-charge accountant and I am a hybrid between the accounting services and the tax departments.

So on the accounting side, I am handling a lot of quarterly payroll, quarterly financial statement compilations. I am assisting with accounting consulting, sporadically as clients need assistance with journal entries or purchases they’re making and how to record things. I assist with a lot of tax returns, mainly during tax season and the tax extension filing deadlines. I do sales tax. I am currently learning depreciation, the ins and outs and becoming the go-to person for the accounting services department. I do a lot of different things.

Cray Kaiser has met every single expectation, want and need that I anticipated when I first started. I was looking for a firm with resources for me and them. I was looking for the collaborative almost tight-knit community vibe from the firm which I did get as well. I’ve made some great friends or great co-workers. You know, you’re here nine to five every single day five days a week for years, you don’t always want to just be work, work, work, got to have a little bit of play involved, a little bit of that relationship aspect on what’s going on with people’s lives, so to say. So like, you know, we have meetings every Monday where we go over what we’re working on, what we need help on, the basics and accounting, but you know, it’s also, what’d you do this weekend? You went shopping, what’d you get?

My first year here, I think I learned more than my previous three years in accounting from two different firms combined and that was exactly what I was looking for in my next position and why I ultimately chose to come on board with Cray Kaiser. They had the resources and the staff to kind of train and tailor my skillset to what was needed.

My first year at Cray Kaiser, I had never done a financial statement compilation, whether it’s an annual, quarterly or monthly. It’s just something I haven’t had experience with. So there was a learning curve there, but eventually I got the basics down, was able to apply my accounting knowledge to it once I learned the processes and the ins and outs of the client. So I’d say that was a big achievement for me and it was something that I’ve used ever since. So it was a good skill to learn and knowledge to have.

They had a great onboarding process. For the first couple months even though I had a couple years of experience, it was essentially a lot of training, learning the ins and outs of the firm, the softwares that you use, the processes they have in place. They were more up-to-date. I was looking for someone up-to-date technology wise, you know, and paper files are going away. We want everything on our computer, digitally, at the tips of our fingers. They have all that, which helps you increase efficiency and productivity. There are challenges out there. I went through trainings, I asked questions, and I learned a lot.

In this third audio blog in a series about business valuations, Micah Vant Hoff, a principal at CK, explains the business valuation services we provide to our clients. Many different levels and layers of services are offered under the business valuation umbrella.

Transcript:

My name is Micah Vant Hoff. I’m a principal at Cray Kaiser. We rather than doing the formal reporting a lot of the time, a lot of time business owners just want to know, what’s a range of what my business is worth? Or what would you put it at? Or, you know, I’ve received this offer. Is this within the right range? Does this offer make sense for me? Or should I be looking for more?

And what we do, because we have access to all of these business valuation resources. Because we have the ability to source and review comps. Because we have the ability to consult these various resources, and also the experience in doing this work, we’re able to either evaluate offers that businesses have received and tell them this is within the expected range or this is not. Or if there is no offer on the table if there’s just a question of value we can use some of our models that we’ve developed to drive an expectation as to value to come up with a range that is indicative of what this business is likely worth and help owners that way be able to position themselves in the discussions with potential purchasers or to even position themselves with whether they’re going out to a business broker or just starting to consider it. They at least have this idea of what they believe their business is worth and then the negotiation effectively starts from that point oftentimes.

I would note too that while we talk about business valuation, there’s many different levels and layers of the services that we offer within that umbrella. So we can be doing a formal business valuation report which is a 40 to 150 page report with the NACFA specified sections and walks you through kind of front to back what this business is, what the economic considerations are, buildup of the discounts, how we’re valuing the business, what methods we’re using. A very comprehensive analysis and reporting of business value. But a lot of business owners come to us and they’re not looking necessarily for that level of depth and detail. They just really want the question answered of what is my business worth? And we have various other consultative things that we can do to help educate them both on the business valuation, business sale process, and drivers of value, as opposed to necessarily going through a full formal business valuation.

So there are ways that we can answer that question for them or help them start to think about how to answer that question without doing a full blown valuation. And that’s, I would say, in the past couple of years we’ve done even more of that. Just as there’s a lot of M & A activity out there, there’s a lot of interest from whether it’s private equity or larger businesses in acquiring and smaller businesses, closely-held companies. And so we were able to plug in alongside our clients, our smaller businesses, to be be able to give them the resources that they need that they’re looking for to effectively enter into these discussions and be able to understand the steps involved, walk through the process and feel like they’re educated in that process and not just being taken along for the ride.

Sarah Gutierrez

Accounting & Tax Specialist

We are all aware that it is common for a business to have employees and independent contractors performing their work. But there is a big question to ask yourself as a business executive – are we classifying our employees and independent contractors correctly? It is critical that businesses correctly determine this classification due to the following:

Following the release of the 2021 Independent Contractor Rule, in which the Department of Labor (DOL) provided guidance on the classification of independent contractors versus employees under the Fair Labor Standards Act (FLSA), misconceptions and room for inconsistencies with the law arose.

Effective March 11th, 2024, a new final rule regulation (RIN 1235-AA43) was released. This new rule revises the “economic reality test” that determines workers’ status under the FLSA. The main goal is to make sure workers are protected, classified properly, and that they receive the wages earned.

The new rule consists of a new economic reality test for employers to use to determine whether a worker should be treated as an employee or independent contractor. The test includes six factors, which increased from the five factors included in the previously released 2021 rule.

The following are the six factors to consider under current law.

  1. Any opportunity for profit or loss a worker might have.
  2. The financial stake and nature of ANY resources a worker has invested in the work.
  3. The degree of permanence of the work relationship.
  4. The degree of CONTROL an employer has over the person`s work.
  5. Whether the work the person does is ESSENTIAL to the employer`s business.
  6. The worker’s skill and initiative.

With the newly updated final rule for independent contractors, it’s a good time to review your vendor relationships for proper reporting. Beyond compliance with the FLSA, employers should be certain the determination of an employee or independent contractor is consistent with IRS guidance.

We hope this information is helpful. If you’d like to discuss the new Act and its effect on your situation, please contact the experts at Cray Kaiser at (630) 953-4900. For more information on Tax Guidelines for Independent contractors, please visit our blog.