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should be payroll but got a 1099


schirallicpa

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A weathly family in town has created a corporation - we'll call "Family Inc."  Family Inc "contracts" with home health care people (usually young people that can't find a job elsewhere) and pays them to care for the elderly Mrs. in her home.  These people are given set hours to go to the home and sit with or do small household jobs for the Mrs.  At the end of the year, a 1099Misc is issued to them, and Family Inc is reimbursed by the insurance company.  This enable Mrs. to stay at home and Family Inc to get their reimbursement.  However, it is my young client with a $49000 1099 that gets stuck.  And she knows it's her responsibility to pay the tax, and she admits she should have come to me earlier to figure this out.  But - this is clearly payroll and the taxes should have been taken and paid by Family Inc.  What recourse do we have?  Can she file the 8919 even if she knew they were treating her as a contractor and she agreed to it?  I don't think that flies. Should she file ss8?  The poor kid owes close to $11000 plus state income tax.  Haven't been down this road before and wondering if anyone else has and how it went.

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Explain the options to your client and let her decide.  Make sure she understands that if she goes the 8919/SS8 route that the IRS may contact her employer and she may lose her job.  She might not want to rock the boat.  Installment agreement.  ES payments going forward.

MIght be an opportunity for you to educate wealthy family and their bookkeeper on how your state labor dept. as well as federal might view their disbursements -- for a consulting fee.  Maybe pick up a new corporate cliet.

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I agree with Rita L.  Let her decide.  Be sure and explain that the extra cost to her is 7.65% [of the net income, subtract expenses, if any], not the entire kit and kaboodle.

On $49,000 the cost of being self-employed is about $3,750.  It might be unwise to give up the job over that amount.  Just being real.

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The first thing that struck me was that this looks more like baby sitting. or senior sitting, than health care.  It doesn't look as if there is any health care, or health assistance involved and the people are not health professionals.   I do have a client that pays for a person to provide for health care and other non-health tasks.  He only deducts 50% of what is paid as medical.

So, this could be insurance fraud unless the insurance provides for providing company and performing odd jobs.

I don't know what would happen in NY, but in California you can claim that you should be treated as an employee and if the EDD decides in your favor,  they will come down like a ton of bricks on the employer, with a lot of penalties.    If the IRS gets involved, and they too determine that these people are employees, they can go back to each quarter and assess late payment penalties.

 

 

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21 minutes ago, RitaB said:

I agree with Rita L.  Let her decide.  Be sure and explain that the extra cost to her is 7.65% [of the net income, subtract expenses, if any], not the entire kit and kaboodle.

On $49,000 the cost of being self-employed is about $3,750.  It might be unwise to give up the job over that amount.  Just being real.

Well, it is only about $2800 when you take the Adjustment.    That's a little over $230/m, so a lot of people might not want to risk losing the job for that.

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If the client wants to keep things as is with their "employer", maybe the client should get a business license, since they can no longer claim ignorance of the current relationship actually being employee/employer.  They could then get listed as an approved "provider" with their local service agencies, and maybe hire employees themselves... or find a better/more profitable customer.  (Typed as my spouse is going through our annual IHHS interview for our daughter, they are always seeking more providers, either for the IHHS type care - and there is also plenty of need for job coaches.)  The cash gig jobs tend to not last, and this could be a great opportunity to turn a bad situation into a profitable business.

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Nice to try and help ---- what about protecting yourself too?  Cir 230 and various tax (IRS, state) and labor (state and federal departments) clearly define what is a 1099 and what might not be. Therefore, if you "violate" what you have knowledge of - you might be in violation of cir 230 and other violations that pertain to YOU - not just your client. Then, YOU are at risk.

Trying to help is nice, as long as it is lawful and in this circumstance; since you have knowledge of something being wrong ---- do you want to risk you, your family, and business?  Will your client pay the expenses for you? Maybe, including your livelihood if it goes that far.

We all make mistakes and I - for one, almost always have it bite-me /// I do not need to do something -- ON PURPOSE -- that can bite-me.  better to do what is correct now, than later.

           Just my two cents worth --- there are good folks here that do not need to add aggravation by TRYING to help others in circumstances as this.      rant over 

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I think you have to advise the client of the proper steps to take and insist they do so. That is, file the 8919, pay the tax and move on. I agree with Max W and don't like how this looks. I wouldn't touch the corp end unless I had full cooperation, understanding and well specified engagement agreement signed and in place. Your responsibility is to your client and not the corp. Just my 2 cents worth

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18 hours ago, RitaB said:

On $49,000 the cost of being self-employed is about $3,750.

Well, yes, thank you, Max,  it's much less than that. 

(49,000)(0.0765) = 3,749

(49,000)(0.9235)(0.153) = 6,923

6,923 - 3,749 = 3,174

Then you deduct (0.5)(6,923)= 3,462 for income tax purposes.  At 15%, that saves 519.  So now we're down to 3,174 - 519 = 2,655.

 

Of course the client only sees the $11,000 and thinks that's ALL due to the boss not wanting to pay payroll taxes.  When you boil it all down, if people would make estimated tax payments, they'd feel better. 

 

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