Non-Employee Worker Question.

Speed_Addiction · Dec 22, 2003

I have a kid who works for me part-time. He is on some program that will pay him the difference for 40 hrs a week if he works at least 15. I was keeping him off the books but now he needs documentation. Can I keep him as a non-employee worker but list him as a business expense? Or do I have to deduct FICA and all of that other shit. Anyone?

RACER X · Dec 22, 2003

i think if you pay him more the $600/yr, you have to start reporting him.....but no acct. here.....:shrug

quackPOT · Dec 22, 2003

Just pay him but get his SSN, then you can 1099 him and write it off that way. That's how I get paid for my freelance work. Don't know the specifics of it (on my clients side), but I get a 1099 at the end of the year saying how much they paid me. Then I factor that into my regular tax return and it tells me how much I owe (which is always a lot, because I never pay quarterly taxes and get fined for it

)

Debs · Dec 22, 2003

your laws are different down there, up here we just write them off as subcontractors. No deductions, nothing.

RACER X · Dec 22, 2003

well, i would imagine, the kid would end up getting himself in trouble if he's a typical teen. w/ the 1099, he's gonna blow all his $, then uncle sam's gonna come knockin, and he's gonna be broke....and so on and so on...

nato, if i were you i'd tell him he has to stay off the books or hire another kid....:shrug

~LongRider~ · Dec 22, 2003

He is probably only looking for proof of income. A 1099 will give him income to claim on taxes.

jlh · Dec 22, 2003

Ed is wright nothing over 600 per year. Your two options are put him on the books full time, or give him a 1099 and let him be responable for the taxes.

RACER X · Dec 22, 2003

jlh said:
Ed is right

:biggrin :laughing

Baby Gorilla · Dec 22, 2003

You are an employer basically evading taxes and everything by paying him under the table.

If you make it legit with documentation, you MUST pay him as an employee. That means filing the tax paperwork, paying 1/2 of the FICA, etc.

If you want to get around all that, you can make him an "independant contractor" but you must do it this way since he'll still be seen as an employee.

1. Make him a contractual employee.

2. In the contract, stipulate that he agrees to work for you and be paid as an independant contractor....understanding that he is 100% responsible for all local, state, and federal tax obligations.

3. Stipulate that in all other regards, he works at your pleasure and can be terminated with or without notice with or without cause.

Otherwise, you are a tax audit waiting to happen. States are cracking down on businesses evading taxes by shady deals. Hiring "independent contractors" who are nothing more than employees being paid as such is a popular evasion technique and is not defensible unless (1) the relationship more closely mirrors that of a client/indepentent contractor, or (2) you have a written agreement defining the relationship as such.

Even with a contract, you have to be a little paranoid. You give him "compensation" not a "paycheck." The former goes to a contractor, the latter to an employee....even though it is the same thing.

risc · Dec 23, 2003

+1

I would also say that if you want him as a contractor he needs to bill you for hours worked, nothing fancy but you should make it clear that he is a contractor.

Bet_Winner · Dec 23, 2003

You can do anything in the USA if you're willing to pay the interest, penalties and/or jail time.:nanana

I would bet that this guy is an employee no matter what kind of contract you have with him. The determining factors revolve around your relationship with him. If you tell him what to do, how to do it, when to do it and he uses your tools, he is probably an employee.

If you don't want to pay half the FICA, but you want that to be his responsibility, you can use a contract as Baby Gorilla has described. If the IRS examines this closely, you'll lose, but the chances are actually pretty slim that it will be audited--especially if you keep your nose clean elsewhere.

excessa · Dec 23, 2003

He may not be able to get his "work credit" working as an independant contractor. Overall it's worth the extra effort to just do it by the books. Keep an account of his time, pay/deduct the necessary taxes/SS for mister part time employee, and make sure your insurance stuff is kept up to date.

If he's working under the table, there are several different ways this could slide uncomfortably up your ass. One big one being liability in case of injury. Workers comp doesn't come into play for under the table fellas, and if you're even slightly hapahazard with your books, the powers that be will find a way to make you pay if he gets hurt. Insurance agencies can be hard core about your paperwork.

Play it straight, and even if you never need to show you've been doing it right, you'll sleep easier at night knowing your business is organized. Paperwork lubricates business growth.

Apocolypse · Dec 23, 2003

Debs said:
your laws are different down there, up here we just write them off as subcontractors. No deductions, nothing.

no, up here we give em cash in there hands, no tax, and tell em to have a good time :laughing

wont tell anyone how i know that :clap

ZenKnight · Dec 23, 2003

Bet_Winner said:
If the IRS examines this closely, you'll lose, but the chances are actually pretty slim that it will be audited--especially if you keep your nose clean elsewhere.

Sure hope you're not a CPA or a tax accountant, advice like that is a clear ethical violation....to say nothing of the professional liability.

VFR Rider · Dec 23, 2003

Baby Gorilla said:
You are an employer basically evading taxes and everything by paying him under the table.

If you make it legit with documentation, you MUST pay him as an employee. That means filing the tax paperwork, paying 1/2 of the FICA, etc.

If you want to get around all that, you can make him an "independant contractor" but you must do it this way since he'll still be seen as an employee.

1. Make him a contractual employee.

2. In the contract, stipulate that he agrees to work for you and be paid as an independant contractor....understanding that he is 100% responsible for all local, state, and federal tax obligations.

3. Stipulate that in all other regards, he works at your pleasure and can be terminated with or without notice with or without cause.

Otherwise, you are a tax audit waiting to happen. States are cracking down on businesses evading taxes by shady deals. Hiring "independent contractors" who are nothing more than employees being paid as such is a popular evasion technique and is not defensible unless (1) the relationship more closely mirrors that of a client/indepentent contractor, or (2) you have a written agreement defining the relationship as such.

Even with a contract, you have to be a little paranoid. You give him "compensation" not a "paycheck." The former goes to a contractor, the latter to an employee....even though it is the same thing.

+1 to everything BG said.... You need to be very careful in your determination of having him 1099.

Bet_Winner · Dec 23, 2003

ZenKnight said:
Sure hope you're not a CPA or a tax accountant, advice like that is a clear ethical violation....to say nothing of the professional liability.

He can do as he wishes and take responsibility for it himself. The likelihood of audit being slim is simpy factual as statistics prove.

excessa · Dec 23, 2003

My best advice, Speed, is run your business like you are going to be audited later today. I'll just keep posting subtle variations on that theme at regular intervals.

Keeping your paperwork tight is like an insurance package. You don't expect some disaster to come wreck your stuff, but you insure it just in case. Audits do happen.

TechMage · Dec 23, 2003

Speed_Addiction said:
I have a kid who works for me part-time. He is on some program that will pay him the difference for 40 hrs a week if he works at least 15. I was keeping him off the books but now he needs documentation. Can I keep him as a non-employee worker but list him as a business expense? Or do I have to deduct FICA and all of that other shit. Anyone?

The difference between an independent contractor and an employee:
http://www.alllaw.com/articles/employment/article5.asp
http://www.jobsearchtech.about.com/library/weekly/aa121800-3.htm

I've run into this issue a number of times. Not so much an audit you should worry about, but that the people running the program will figure it out in a heartbeat. I used to participate in something similar where 1/2 of my wages and expenses were reimbursed if I hired "special" people. If he were an older retired person working part time, the IC thing could fly.

Re the IRS, in your kind of business it would be almost impossible to classify him as an independent. Don't take the risk to yourself. If the kid is worthwhile don't penalize him by letting him go. Put him on your books. Letting him go would only teach him that doing things right ends up in him getting screwed.

Excessa is right, tho, in that you should be ready for anything...yesterday.

austinsig · Dec 23, 2003

The IRS comes down hard on employers that falsely state an employee as an independent contractor. The chances of them auditing you and catching that is slim, but that is not usually how the employers get busted. Instead it will be your 'kid' that gets audited for not properly filing and paying tax on his 1099 amount. If he tells them about his job and they ask him questions like "Do you have regular hours that you are required to be there?"... well, they will be wanting to speak with you next.

If he has to have real IRS-type proof of his employment then you either need to do it 'right' with the taxes or find a new part time kid that just wants the cash. Don't risk the run in with the IRS over something like that.

Baby Gorilla · Dec 23, 2003

The IRS doesn't give a rat's ass about IC vs. Employee....so long as they get their tax money.

Your problem is STATE revenue agencies. As an employer, there are labor laws, UC, Worker's Comp, and so forth you are REQUIED to provide an "employee." All of these systems are under heavy strain and looking for revenue any way they can.

As more employers try to get out of paying taxes by saying employees are "independent contractors" the remaining employers have to carry the load....straining the system.

A well-written contract will cover your ass for now because the courts state that the relationship is defined by many situations.

No matter what you call it, it is based on the actual relationship. However, if you have a solid contract saying you mutually agree to be treated as an IC, that covers the employer....unless a case can be made to say it was signed under duress or something like that.

I've entertained reporting my former employer for tax evasion. I never signed any contract....just a gentlemen's agreement. However, when the new owner took over and started dropping pay and refusing the negotiate our salaries with a "take it or leave it....I'll send the work to India" the only thing that arguably made me an IC went out the window, and with no contract signed by me, I'm not an IC.

If I was a more vengeful person, CRS of Knoxville, TN would be in BIG trouble from TN Dept of Revenue. Other companies hiring people to do similar work get the IC agreements signed to cover their asses.

Non-Employee Worker Question.

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