Jump to content
ATX Community

Misc Income subject to SE Tax?


Janitor Bob
 Share

Recommended Posts

He drives a company truck and is even required to wear company uniform.....I told him last year that he was gonna get hosed by the company if they did this to him...but as stated....I suppose he preferred this to no job at all.

 

I'm seeing more and more people come in with 1099MISC, employers just don't want to pay 1/2 their SS and Med tax and the other payroll taxes.  It's all about saving money

Link to comment
Share on other sites

I'm seeing more and more people come in with 1099MISC, employers just don't want to pay 1/2 their SS and Med tax and the other payroll taxes.  It's all about saving money

I honestly think that is seldom the true reason.  The real reason, in my experience, is that many will prefer to pay a 'contractor' more just to avoid all the hassle of employment tax REPORTING.  Which is also why many workers will prefer that, because they see it as making more and the paperwork on their end is just the quarterly estimates and a slightly more expensive 1040.  

 

The small business owner with just one or two workers often finds payroll their most stressful part of their business.  The federal and the state paperwork is worst, to them, than just the amount of their share of the taxes.  

  • Like 8
Link to comment
Share on other sites

Employers are paying "contractor" wages when the person should be an employee to:

 

Not pay 7.65% FICA

Not pay Unemployment Insurance (breaking state employment laws)

Not pay Workman's Compensation Insurance (breaking state employment laws)

Not pay someone to do the payroll reporting

 

It has nothing to do with payroll being stressful.  It is all about the money.

Edited by Jack from Ohio
  • Like 5
Link to comment
Share on other sites

Adding to Jack's list...

 

not pay any other benefits like health insurance or matching contributions to retirement plans, and

not have a higher unemployment rate if they decide to fire the person

 

I'll agree with Jack on breaking state law by not having the person listed as an employee for w/c insurance, but the company isn't saving in that area because the insurance auditor will ask for the payts to independent contractors too. And if it works like here in DE, a single person owning their own business without employees does not have to purchase w/c insurance on themselves so the company they are working for would end up with a higher premium because of this.

  • Like 4
Link to comment
Share on other sites

Employers are paying "contractor" wages when the person should be an employee to:

 

Not pay 7.65% FICA

Not pay Unemployment Insurance (breaking state employment laws)

Not pay Workman's Compensation Insurance (breaking state employment laws)

Not pay someone to do the payroll reporting

 

It has nothing to do with payroll being stressful.  It is all about the money.

 

Agree, and its not just small employers, but also medium size and large size employers like FED-EX.

  • Like 4
Link to comment
Share on other sites

Employers are paying "contractor" wages when the person should be an employee to:

 

Not pay 7.65% FICA

Not pay Unemployment Insurance (breaking state employment laws)

Not pay Workman's Compensation Insurance (breaking state employment laws)

Not pay someone to do the payroll reporting

 

It has nothing to do with payroll being stressful.  It is all about the money.

Jack, the ones I was talking about were paying the 'contractors' extra to cover the share of the taxes he would have to pay if they were W-2 employees.  

Link to comment
Share on other sites

My client's workers each had their own ins coverage, that was part of the deal.  And I'm not saying it was the ideal solution, just that it was a real attempt to arrive at a fair deal that would let him avoid the payroll hassle.  This was an agreement between them both, that they both understood and agreed to.  The government still got paid, the worker was still covered by insurance.  And #4 is not relevant, because his already overworked wife would have been the one doing the paperwork.

Link to comment
Share on other sites

Employers are paying "contractor" wages when the person should be an employee to:

 

Not pay 7.65% FICA

Not pay Unemployment Insurance (breaking state employment laws)

Not pay Workman's Compensation Insurance (breaking state employment laws)

Not pay someone to do the payroll reporting

 

It has nothing to do with payroll being stressful.  It is all about the money.

 I agree, there are so many inexpensive payroll companys out there these days, or online with companies like intuit that does everything

Link to comment
Share on other sites

a number of years ago, a local long distance trucking company had the bright idea of going to a 1099misc after always doing a w2.

i'm guessing they had 25+ drivers.

 

within 2 tax return cycles, the irs hammered them for unreported back employer and i believe employee fica...plus substantial penalty with interest.

there may have been a claim for unreported fed withholding...although that may have been settled.

 

why? my deduction...

when the drivers filed their returns, even assuming they (or their tax preparers) did it correctly on a sch c, many/most of them had no money (since they had no prior fed or fica withholding on a w2) to pay the lump sum fed and se tax liability from a sch c.

 

that got irs attention. it's not nice to fool with mother nature.  

  • Like 3
Link to comment
Share on other sites

I agree, and I think that has always been IRS's reason for going after I/C designations. After all, roughly the same amount off money is paid into SocSec/Medicare regardless of whether it comes via S/E tax or employee withholding + employer match. IRS wants withholding at the source so they don't find themselves chasing people who haven't set aside the proper amounts or didn't pay estimated tax.

The only other issue at stake with I/C classification is Federal Unemployment Tax. But since it is tied to benefits, there would likely be no net gain or loss of revenue to the government if more people were I/C's and thus not eligible to receive Unemployment benefits.

Edited by JohnH
  • Like 1
Link to comment
Share on other sites

I agree, John.  It is defiantly the withholding that drives the desire of the IRS to insist on classifying as many as possible as 'employees'.   With an added bonus for them that 2106 deductions are treated much worse than Sch C expenses, if they are even able to itemize at all.  

  • Like 2
Link to comment
Share on other sites

And the ADDED ADDED bonus is that the gross income is on a W-2. How many self-employed people report gross income? Just us.

I'm telling you, they need to lighten up on employers, and they would ultimately collect a lot more revenue. Everybody would be happy, cause all my clients think withholding is a fringe benefit of the employer. They have no clue it's their money.

I swear, when they ask how they can get a bigger refund, and I say "have more withheld," they think I'm a tax wizard.

Edited by RitaB
  • Like 4
Link to comment
Share on other sites

And the ADDED ADDED bonus is that the gross income is on a W-2. How many self-employed people report gross income? Just us.I'm telling you, they need to lighten up on employers, and they would ultimately collect a lot more revenue. Everybody would be happy, cause all my clients think withholding is a fringe benefit of the employer. They have no clue it's their money.I swear, when they ask how they can get a bigger refund, and I say "have more withheld," they think I'm a tax wizard.

Glad they think your're a wizard.

This year I had a couple of clients tell me they think I'm a tax gargoyle.

  • Like 4
Link to comment
Share on other sites

  • 2 weeks later...

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...