The Louisiana Department of Revenue (“LDR”) recently promulgated rules to implement the Fresh Start Proper Worker Classification Initiative, and also published guidance to explain when and how businesses should file non-employee information returns (Forms 1099-NEC) directly with the LDR. These developments are potentially interrelated and may facilitate the LDR’s efforts to monitor the classification and taxation of workers as employees or independent contractors.

Fresh Start Proper Worker Classification Initiative

In 2021, Louisiana introduced its Fresh Start Proper Worker Classification Initiative and Voluntary Disclosure Program that included tax amnesties for businesses looking to voluntarily properly classify workers previously classified as non-employees (i.e., independent contractors), as employees.[1] That law was due to take effect from January 1, 2022, but was suspended because certain provisions were not in conformity with federal law.[2]

The law was reintroduced in 2022 after modifications that brought it into conformity with federal law.[3] The Voluntary Disclosure Program provides for a waiver of interest for eligible employers who opt to make a disclosure and pay unemployment taxes and penalties[4] for workers who should have been classified as employees but were not over an agreed look-back period.[5] The Louisiana Workforce Commission is authorized to promulgate rules and regulations for the implementation of the Voluntary Disclosure Program.[6]

The Fresh Start Proper Worker Classification Initiative on the other hand allows an eligible taxpayer to voluntarily reclassify a worker as an employee for future tax periods without being liable for any withholding tax or related interest and penalties on past amounts paid to such workers.[7] The LDR is authorized to promulgate rules and regulations for the implementation of the Fresh Start Proper Worker Classification Initiative.[8]

The LDR has now adopted rules to implement the Fresh Start Proper Worker Classification Initiative. The rules provide that applications are to be submitted electronically between January 1, 2023 and December 31, 2023 and must be accompanied by documentation that includes details regarding the workers for whom reclassification is sought and copies of related IRS Forms 1099-NEC and 1099-MISC for the past three years. If the LDR determines that the taxpayer is ineligible for the Program, written notice will be sent within thirty (30) days of the determination. The acceptance of an application constitutes a joint closing agreement with the LDR which is deemed to include conditions requiring the taxpayer to timely report and remit withholding taxes and unemployment insurance contributions for the reclassified employees. The closing agreement can be voided by the LDR if the taxpayer fails to comply with the prescribed conditions.[9]

State Filing of Forms 1099-NEC

The LDR recently issued Revenue Information Bulletin 23-006 dated January 12, 2023 requiring businesses to directly file with the LDR any Forms 1099-NEC for services provided in Louisiana or for services performed by an individual residing in Louisiana at the time the services were performed, but only under certain circumstances. This requirement applies from the 2022 tax year onwards. The deadline for the direct filing with the LDR is February 28 of each year.

When do Businesses Need to File Forms 1099-NEC with LDR

The direct filing requirement is triggered only if a business has not timely filed Forms 1099-NEC with the Internal Revenue Service (“IRS”) electronically. It does not apply where the business has either (i) timely filed Forms 1099-NEC with the IRS through their FIRE system after opting into the Combined Federal/State Filing Program (CF/SF) and identifying the data by the Louisiana state code of 22, or (ii) timely filed Forms 1099-NEC through commercial third-party software and authorized the IRS to share the information with LDR.

The requirement will apply where only a paper filing of Forms 1099-NEC has been made with the IRS, whether or not an electronic filing is mandated.

How do Businesses File their Forms 1099-NEC with LDR  

If the state filing requirement is triggered, businesses filing fifty (50) or more Forms 1099-NEC with LDR must do so electronically using LDR’s LaWage application.[10] For paper filings, businesses may use Form R-91001, Annual Summary and Transmittal of Form 1099-NEC.

Businesses with an LDR account number must use that number when filing, otherwise the Federal Employer Identification Number (“FEIN”) must be included. Sole proprietors who are not required to obtain a FEIN and have not been issued an LDR account number may use their Social Security Number.

Implications

The direct filing requirement was initially introduced in 2021, in the same legislative session as the worker classification amendment, and was to similarly apply from January 1, 2022.[11] However, due to the state of emergency on account of Hurricane Ida recovery efforts and COVID-19, the requirement was administratively waived for the 2021 tax year by Revenue Information Bulletin No. 22-006 dated January 20, 2022.

At the time that it was enacted, the requirement was introduced in tandem with other amendments[12] that suggest that its intent was to make available information from Louisiana-related Forms 1099-NEC to the Department of Children and Family Services in relation to the family and child support program.

Because Forms 1099-NEC are filed for independent contractors but not for employees, it is possible that the direct filing requirement may also have relevance for the LDR to monitor worker classification going forward.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, Willie Kolarik at (225) 382-3441, or Divya Jeswant at (504) 293-5766.


[1] Act No. 297 of the 2021 Regular Session.

[2] Revenue Information Bulletin No. 21-031 dated December 1, 2021 and Emergency Rule dated September 9, 2021 issued by the Louisiana Workforce Commission.

[3] Act No. 406 of the 2022 Regular Session and La. Admin. Code 61:III.2301 effective January 20, 2023.

[4] Under La. R.S. 47:1775(F), State Unemployment Tax Act (SUTA) dumping penalties and fraud penalties will not be waived under federal law under any circumstances.

[5] La. R.S. 23:1771, 1773 and 1775. The look-back period must include the three-year experience rating period.

[6] La. R.S. 23:1773(B).

[7] La. R.S. 47:1576.3. In addition, La. R.S. 47:1576.4 provides for a safe harbor under which putative employers meeting all the prescribed requirements will not owe withholding tax, interest or penalties otherwise due for their workers.

[8] La. R.S. 47:1576.3(H).

[9] La. Admin. Code 61:III.2301.

[10] La. Admin. Code 61:I.1515.

[11] Act No. 285 of the 2021 Regular Session, which introduced La. R.S. 47:114.1.

[12] La. R.S. 46:236.14(D)(2) and La. R.S. 47:1508(B)(23).