In reading the “encouraging an employee to leave” thread it raised questions that have been nagging me. Specifically about the 1099 deal.
In May of ’07 I was ‘laid off’ from an office job. I was never told so but I was positive that there would be no callback.
I called a guy who did remodeling that I had met before on a volunteer job at church, and he said he needed help. So I have worked for him for about twelve months.
He pays usually every week but sometimes every two weeks. He treats me as an employee in terms of how critically he treats me (read as a grumpy boss) however, there was no offer to make me a legitimate employee, no withholding, no insurance etc. Which was okay, because I figured I would do something else as soon as I could. Well its been almost a year and the pay is good and I have just been doing this. I asked him what I should do about the taxes, but all he said was “they won’t know anything if you don’t tell them.”
I don’t really have any business or tax knowledge other than the regular w2 that I use to get.
Should I just do my own withholding? If I withhold on myself, wioll I get him in trouble for anything? Should I check on the 1099 status?
I also can’t afford to pay my own insurance so I try to be extra careful.
Well also part of the problem is that I can use every dime I get and not having to withhold on myself I find a huge temptation. I have been itrying to ignore the ‘problem’ but I also don’t want to get in any real trouble. Help please.
It feels good to get this off my chest, okay end of confession.
Any advice on taxes and business like topics would be appreciated.
Webby
Edited 4/26/2008 2:34 pm ET by webby
Edited 4/26/2008 2:40 pm ET by webby
Replies
If the guy your working didn't give you a 1099 you oughta at least sit down and have a chat with him........
Law is he has to.......fact is he may be paying you under the table...
You get no 1099 you have a choice cause you are basically free to follow your conscience.....you getting cash? or check? Company check? private check?
BUT if you decide to inform the IRS before boss talk....you will get your boss in trouble for not giving you a 1099...then he will probably get audited, rail roaded, and hounded to death for the rest of his life........you guys need to get your story straight.
Is he carrying Worker's Comp insurance on you?
Probably not. Who pays your medical costs if you're injured on the job?
Is he licensed?
Maybe.
What he's doing is working you under the table which is all in his favor (as long as he doesn't get caught) and NOT in your best interest.
Yes, you can pay your own withholding and Social Security and unemployment premiums, but when you do, you'll see how you're getting screwed.
The SSN itself is important to you long term: As long as the Social Security benefit to workers stays solvent long-term (a matter of national debate)it's important to you, in your working life, to establish an employment wage history that determines your eventual benefit.
If nothing is payed into it, along with working jobs with no retirement benefit, you may find yourself, one day, either disabled with no benefit or retired with no benefit.
My accountant has told me that, in the off-season after annual client returns are completed, his biggest task is helping those facing or into retirement who, despite lifetime work histories, have no retirement income of ANY kind and are, in reality, due to age/infirmity/inability to drive, etc., are unemployeable.
Why worry about him getting in trouble if he gets caught?
So he's a nice guy....so are a lot of guys who suck it up and play by the rules.
If I were you, at the very least, I'd be job shopping for a legitimate employer.
Good luck to you.
In my case I paid the self employment taxes and did nothing in regards to notifying anyone about the 'employers' opinion on the taxes. As far as I know nothing has come back to him.
But I think you should really talk to a local CPA on this matter. Yes, it may cost you some money but it'll be money well spent and if there are issues the CPA can start the process to correct them. Go to a CPA and not a Tax Preparer since the CPA will be able to provide an opinion in court if it were to go that far.
edit to add; and like Nothcman says, be sure to protect your own assets 1st, your boss won't be around if it hits the fan.
Edited 4/26/2008 3:00 pm ET by john7g
i've never had to use them, but here in canada there are lawyers who specialize in tax matters, and they advertise that attorney-client privilege prevents them from disclosing anything to revenue canada (our IRS), even in court.
I read that somewhere else (probably here on BT) and that's a really good point, probably the same here south of your boarder. Being an atty set's them up as good confidants so they can get the whole picture without you being at risk with them having that info.
Your situation is that of you getting screwed, but you provided the lube.
What is happening is totally illegal.
Time to either confront him and tell him to make this legal ,all taxes paid, withholdings up to date, regular tax deductions or You leave.
You are the one getting hurt here. If he gets caught he will most likely claim that you said you were a subcontractor. You will then be paying at minimum a 15% or so withholding on your income for SS. plus whatever fees or penalties apply. He will still face penalties and taxes but that is his problem not yours.
I cannot stress enough the need for you to either get this straightened out for find another job that is above the table not beneath it.
Have questions?
Look up your states Wage and Hour commission, or labor board. Talk to a competent accountant.
I will also be blunt and say that you got yourself into this situation. Up to you to get your self squared away and out of it. You knew all along that taxes were due to be paid by one of the two of you.
Thanks everyone for the advice. True I so to speak sort of provided the lube but When friday may 11 rolled around last year and the office manager at the engineering firm I worked for basically said 'er things are slow there is nothing for you to do here so...we are going to lay you off. I said will I get a callback, he said probably not this isn't the right place for you blah blah. No advance notice.
I had to keep the money flowing while I looked for a job.
I forgot to mention he is paying me with a company check, and he is licensed. The company check screws it up for the less ethical side of me. I have him make it out to cash, but I still have to sign it to cash it.
And I really don't wan't to go down that road, I wan't to be paying into s.s. and have at least something going in there.
Oh and if he is not giving me a 1099, I am positive that he is not going to the trouble to pay workers comp on me.
He pays me 12 an hour which is probably fair for my skill set, which is okay but no where near his, so I basically am just cheap labor to him. My skill set doesn't include much major just demo , wallpaper stripping, nailing off, screwing off, drywall that is, keeping the job moving with what ever tool or equipment we need out of the trailer, painting, staining, replacing and installing electrical boxes and outlets. Installing blinds etc. Stuf like that. I guess my skills would be more likened to a handyman.
Example last week, I tore out carpeting and under layment and tile on underlayment from a dining room, entry hall, and hall way, cut a larger openning for a register boot, nailed down loose ply subfloor not t and g, placed blocking in the joists at the seams and fastened, stained some oak casing and base, his way without sanding it and without wiping the stain off (excess) all while he complained basically berating me for leaving lap marks. It wouldn't have done any good to tell him that if you would wipe the excess of you wouldn't have lap marks. I also removed some old window trim. The week before that I tore out a half bath alone while he finished up another job. I also nailed down some beautiful rift sawn oak flooring prefinished,
Webby
Edited 4/26/2008 3:46 pm ET by webby
Edited 4/26/2008 3:51 pm ET by webby
Any advice on taxes and business like topics would be appreciated.
Well, you have a very sticky wicket here.
Suppose you file your taxes and report your wages. Well, you don't (I'm guessing) have an employer identification number to "book" those wages "to." That might attract the attention of the IRS, and they might ask uncomfortable questions like "How do we know you are reporting all of your vay-ches, ve haff vays off mayking cue talk!"
You will not be happy having to pay SSA & Medicare taxes, either, since you're paying the full amount of each (you have saved 15% of your income for that, right?)
There can also be state tax ramifications, too.
Now, your "employer" may or may not be in a pickle. He did not hire you as a subcontractor, or else he'd have to file a 1099. He did not hire you as an employee, either--you'd filled aout a W-4 and recieved a W-2 in that case. So, your "employer" might could take the position that you knew you were "day labor" and should have acted accordingly.
IRS might start asking you what's up, if you did not file two weeks ago. If nothing else, you're going to get "nag" letters about the stimulus checks.
There is no problem from the "employee" side.He is being treated as an IC. Files a sch C for the income and expenses. And SE for self-employment taxes (both halves of SS).No need for an EIN.No need for 1099's.In therory he could be doing the same for directly for a HO and he would not get getting any 1099's for that.And there is no withholding.But to eliminate penalties, which are not very hard, he needs make "quarterly" estimated payments..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
I was writing a post while you were posting to me so You are one ahead of me.
Would it just be easier for me to go into business for my self or in other words establish a business identity which actually I already have one.
Before I was laid off I applied for a business license a handyman service, in the event I wanted to do some work on the weekends but I never got a handymans license because I was still working.
I didn't persue the business because I quickly got busy working for this guy. And I ealized I don't know enough about business to be in business so I have what it amounts to as a sole proprietorship that has never made a dime.
I am kind of worried that these two situations together are going to raise some red flags and get me audited or something.
Webby
Webby, you are being treated as if you are in business. Technically, you are in business already whether you know it or not. Technically, the IRS might decide to label you as a "captive employee" which would put the tax collection burden on your employer. I would not agree that you are getting "screwed" as others have suggested. Getting "screwed" means he agreed to pay you something, in some form, but changed his mind after you did the work. So far, you haven't indicated that he's doing anything different than what he agreed to. You may not have known all the ramnifications and you still might not know but it's always a good time to learn. First, you should decide whether you want to be self employed. If you do, then this arrangement is good for you. If you don't want to be self employed, you probably should ask for your taxes to be withheld or find a new employer. Find an employer that will actually withold the taxes this time though. Be forewarned: if you decide to "demand" taxes to be withheld, you probably will be let go. This guy probably won't do withholding. Be aware that many of us choose to be self employed because of the significant tax advantages. The tax deck is stacked high against wage earners and I myself, would never agree to be employed and have my taxes withheld for me. I have been in business for myself since the 70's and will be fling schedule C's for the remainder of my life, as long as there are tax benefits for me to be gained. The IRS has the power to declare you an employee and force your boss to make up all back tax witholdings. He is the one who is risking everything but if he's treating you fair and you are getting what you agreed, then I see no reason to go back on your deal and try to pin your accrued tax burden on him. You'll have to find some money and pay a CPA to file your taxes. He'll fill out your Schedule C and he'll probably estimate most of your expenses because you probably haven't been keeping receipts (big mistake!). Welcome to the world of big biz bro! Keep all of your receipts! ALL OF THEM!If you decide that you Bob's next test date: 12/10/07
This won't apply to Webby but the IRS can actually declare a person to be a CORPORATION and force them to pay corporate taxes as well as personal income taxes. The power of the IRS goes much further than most people know. Bob's next test date: 12/10/07
You guys must all live in another world than I do/have ...I have seen this happen a zillion times......The contractor saves money by paying cash.....the employee saves having to pay the extras.....uncle Sam gets cut out........It's illegal and I never did it, but it happens ALL the time around here.as any of you guys know (especially small builders) if you build houses for a living and do everything above board, never cut any corners, give Big Brother everything he asks for.......it is very tough to stay in the black period so I'd say give the guys boss a break and let the employee and him have a sit down if the employee is unhappy with the arrangement.The outlaw brigade has just begun to show itself.....it's always like this when times get bad.Most of the time the two agree on being outlaws and the beat goes on......I don't know what the hell is going on here, but he needs to confront the boss.....not have him wacked.And around here it falls on the contractor if he hires a guy like this...it's his obligation to provide a 1099 and it's his obligation NOT to hire employees and call them subs in order to squirm out of paying the extras.
Well, here's the world I live in: 5 or 6 years ago, in our little community, an incinerator was improperly installed by a local contractor in a commercial auto parts repair shop without permits and he was under-insured.One night the incinerator flue ignited combustibles in the roof and the resulting fire soon spread to a connected heavy-truck parts store and warehouse.In the morning, the fire was out, both businesses was a smoldering pile, and three professional firefighters were DEAD.In the past year and a half, there have been three major fall injuries that I'm familiar with: Two were from ladders and the injured were contractors who are permanetly disabled (one had insurance and at least kept his estate; the other,a 64 yr-old man about to retire, who had minimum insurance on himself and lost everything he ever worked for).And the third was an "employee" just like the OP: He fell off the roof he was repairing while his "employer" had run to the lumberyard only to come back and find his helper dead at the scene.Now you're a pretty reasonable guy most of the time, but getting all Libertarian on this issue is off the mark: I, too, resent the damned high liab. insurance premiums I pay despite the fact I've never had a claim; the paperwork and bureaucracy on some projects is a PITA, writing checks for withholdings for employees...all that stuff.But it's part of the profession and overhead expense that should be borne by a CUSTOMER when they hire us to work for them.
Some years back I hired a sub as a framer to help on a project. Fully legal , he even had his own employee, had license, bond etc. He had had a stretch of luck of his own making that put him in a cash bind so asked if I would pay him in cash to avoid his family having no Christmas presents. Perfectly legal. I did, I wrote a check to myself, took it to the bank, cashed it, and paid him and his help in cash. Had records of his bill to me and the amount paid. He makes a dumb decision, about working in bad weather on the roof and takes a header off the 3 story roof. 2 Years later I end up being sued for $1.3 million along with the GC and the owners.
Fortunatly for me my insurance company was good, fought it in court and we won. I didn't pay a dime out for his stuff.
Do I feel bad about what happened to him ? Yes. Was I responsible for his bills ? No. I don't play games with the rules, they are there to protect everybody just as your story illustrates..
They can't get your Goat if you don't tell them where it is hidden.
but getting all Libertarian on this issue is off the mark:(quote)Well it may sound that way I suppose, but I'm just throwing in my 'real world' experience.....The rough and tumble construction world I knew had little to do with big offices and builder of the years awards.....Mostly carpenter/builders with little business training.Small timers scratching in the dirt trying to make a living while at the same time dealing with cut throat, low ball bidding practices from every dude in town who just got layed off from the factory and had the price of a hammer and a saw.....while at the same time being raped by every tax/insurance burden known to man.Thing is (and this is my gripe) the only thing this kid needs to do is sit down and TALK to the guy who hired him.....all this other stuff may be muddying his mind......this is what men do...they confront each other before running to the lawyer.On a personal level I believe the boss is a schmuck for not clarifying to the kid his status as an employee.As an aside.. I have seen some very good carpenters who skirt the law and work out of the back of a pickup and some very bad suits who call themselves builders while buying an award from the local 'award show'So you never know. Construction is one business where experience triumphs over BS ....
But it's part of the profession and overhead expense that should be borne by a CUSTOMER when they hire us to work for them.(quote)And this is where your argument falls apart. The customer WON'T do that. They will take the most sq footage for the least amount of money almost every time.....this brings out the worst in everybody. I quit building houses cause it got to be such a PITA.As to the hourly rate argument. You can go ahead and charge 75.00 an hour to make yourself feel good, but the bottom line is always the same.....your rate must balance with what the market is willing to bear...around here it's far less than that. (not sure what though as I'm personally a gentleman of leasure now) :)
Great stories Notchman.I've been wondering if there is a source for more stories like that. I was thinking that I'd like to include a section in our presentation book about horror stories. Yours seem perfect. If there is an "official" source for that information, I'd like to download it and print it out.Maybe we should start a thread that would keep a long list of them so we could pull out the ones that fit our trade/situation? Bob's next test date: 12/10/07
I've got some non-work things on my plate right now, but I'll look into dredging up some documentation for you.The death of the firemen will be the easiest because in addition to a lot of press coverage, a life-size bronze memorial was set up for them near Coos Bay City Hall.And I can probably find references to others that I recall. We work in a profession that carries moderate to high risks, both physically and financially for employees, contractors and Homeowners and, as professionals, we are absolutely foolish to not protect ourselves and those we are responsible for.
Licensing and insurance is really a local/state thing and will vary a lot from state to state.If you fill your taxes as an IC the IRS is happy as they will get the appropriate amount of taxes.Now you are actually an employee and are being short by the employer, but you are straight with the IRS.Probably time to start youw own handy many service..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Bill,
Is it really that simple? I think you are correct if where you are going is that the tax issue is separate from the legal issue of bonding , insurance, license etc. Lets assume he files his taxes with the IRS and straightens that out. IRS and state taxing agency cross check returns automatically in this state I believe. (can't swear to that but have been tripped up on minor details several times in the past when I did my own taxes) Now he has to straighten out the state issue. His "wage" will go down by at lest 15% and more likely more than that unless he can start coming up with deductibles and expenses. One question I have has to do with his boss and his bosses insurance company. Every insurance company I have ever dealt with wanted me to produce a complete set of books for them to audit at least once every two years. Lot of cash draws made out to someones name to be explained away by the boss.
They can't get your Goat if you don't tell them where it is hidden.
"His "wage" will go down by at lest 15% and more likely more than that unless he can start coming up with deductibles and expenses"Less than 1/2 of that.While he also pays the employer portion of SS/Medicare 1/2 of the SE taxes are deducted as an front page adjustment so that it reduces the amount of taxable income by that amount."IRS and state taxing agency cross check returns automatically in this state I believe. (can't swear to that but have been tripped up on minor details several times in the past when I did my own taxes)"The IRS does have programs to make the federal returns available to state/local tax departments.But that is no problem, he just files the appropriate state returns with the same infomration..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
How does his 'employer' get by with paying him out of company check--even if it's to cash?
How does the employer write off that labor expense if it's going 'nowhere?'
Why would this be worth it to him? I don't get it..."Research is what I'm doing when I don't know what I'm doing..."
"How does his 'employer' get by with paying him out of company check--even if it's to cash?"Who is to stop him? No government offical, at least not yet, is going through every check that he writes."How does the employer write off that labor expense if it's going 'nowhere?'"Many ways.First he might not be writing it off. He might not be claiming all of his income.Payments from non-business are not tracked. HO's don't issue 1099's. And since payments from a HO are no deductable, except for specialized things like uninsured losses, even if the HO has a detailed audit the IRS won't look into seeing where the payments acutally went. And the GC could put it in the sch C as contract labor. 1099's only need to be issued for yearly payments over $600. So the IRS can't automatically say say match the total of the 1099's. Depending on the type of work that he does he could say that whenever he needs a hand he picks up someone from the "corner" for a day or 2's work. How in this case regular weekly checks for $480 would be a clue that that is not the case. But he has to be audited to get that far.Likewise until he is audited he can split the expenses up againsts any of the other lines such as interest, legal and profession, insurance, etc, etc..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
RE: "HO's don't issue a 1099"
I am with a long term restoration with the HO as general, and you bet yer bippy, I got a 1099 last yr, and will next yr.
so more accuratly "MOST HO's won't issue a 1099"..Spheramid Enterprises Architectural Woodworks
"Welcome to Poo-ville, can I have your socks?Seriously Folks, I need a home for 3 lovers of your life.
I'm not sure, but it seems to me in Ohio HO are required to do just that. as in if they hire a handyman etc. to do a bunch of work.
My customer(s) is/are so concerned of every penny spent, it's a miracle anything gets done, what with all the "hawking" and researching out "deals" they do. frustrating as hell, but my invioces are paid promptly, and I have long term security there.
I can see another 3 yrs or more, if I choose to stick it out. In this day and age, I can deal with it..I hate hunting down work, and plenty has found me, but I am commited to a certain amount for this "main" teat..Ijust price new work a LOT higher, and if I get it, it makes the "steady" work even out..so far.Spheramid Enterprises Architectural Woodworks
"Welcome to Poo-ville, can I have your socks?Seriously Folks, I need a home for 3 lovers of your life.
I've had some costumers like that, but sometimes you gotta bend at the hip......three years of work? you'll be the envy of most of the rest of these guys by the time this recession is over..........especially the spec builders
JJ--- i am in ohio--and in 20 years i have never got a 1099 from a home owner.
the Closest to that-has been a couple of specific instances that the project was funded or escrowed through a bank-BANK sent me a 1099 for me- most homeowners seem to write a check--directly from their personal checkbook--or just about as often, drawn on their home equitty line of credit accountneither seem to generate 1099's
regaurdless-we are still declaring it and paying taxes on it.
stephen
I never did either, but it's different for you if you go in as a business and if they hire you for a bunch of handy man stuff......This is all in the back of my mind somewhere. I used to live in the Portage Lakes region and I remember something to that affect..
I am 5 minutes from the portage lakes--if THAT far.
i am currently using a landfill across the street from the PPG salt mines, Vanburen/vanderhoof area
yeah? I used to live on Comet Lake just across the street from Nimisilla..........we be usta-be neighbors.You familiar with Lakes Construction? When I came back from Ak I got a job with them for awhile...He's the guy who I caught trying to convince a HO that the reason her house looked crooked was because of the tree in the yard............it was a parade of homes quicky and the framers never used a level......you could lay a ball in one corner of the room and it would roll to the middle............AND this guy was the president of the home builders assoc.That's why I stick up for the little guys......the suits are no better with their "professional" look........a guy with character will do the job regardless of his 'trappings'.
Edited 4/27/2008 11:13 am ET by jjwalters
Speaking of suits.The show that built a house in one day came to MI a couple years ago. They used a local big builder. At the end, he was weeping on camera as he hugged the "low income" family that he had just helped and recieved many accolades from everyone involved in the show. The irony of it all is that this guy is filthy rich precisely because every one of his subcontractors are being paid slave labor rates and therefore can't pay a decent living wage to their skilled trades. He has an entire workforce of "low income" people that he would rather run over with his Hummer than drive around them in his subs. Bob's next test date: 12/10/07
It just proves a point I've learned over the years. You cannot judge a person by the power, position they have, or the possessions they own. The suit is neutral to me as the wood rat.there are a whole lot of rip off bums out there...what can you do.....our business is just a microcosm of the country I guess.
9000 sqft house from the top down..that and 3ooo acres of farm..lotsa work.Spheramid Enterprises Architectural Woodworks
"Welcome to Poo-ville, can I have your socks?Seriously Folks, I need a home for 3 lovers of your life.
these are the kinds of people that keep us alive...that's why I have never had a problem with people being rich, nor working with them, nor eating at their table....
What is the name on the 1099?John and Mary Doe or maybe John and Mary Doe LLC, or maybe Doe Family Trust Corp?.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Ya know? I never looked at the name on it..just handed it all over to the Acct.Spheramid Enterprises Architectural Woodworks
"Welcome to Poo-ville, can I have your socks?Seriously Folks, I need a home for 3 lovers of your life.
My guess is either it is being paid for some enity other than a person (business or trust of somekind). Or that his business or someone that that he knows got into to trouble by not 1099ing someone supplying his with service so that he 1099's everyone from the paperboy on up.With some exception only only businesses have to issue 1999's and then only to individuals. Anyone working under a separate business ennity (LLC or Corp) does not have to get one.One exception has to do with lawyers. I guess that the IRS does not trust them <G>..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
"What is the name on the 1099?
John and Mary Doe or maybe John and Mary Doe LLC, or maybe Doe Family Trust Corp?"
Accounting 101.... LLC's and Corps don't get 1099's.
We know who it was made out to Sphere (or the puppies).The question was about who issued it.Individuals don't have a need to ISSUE 1099's, but businesses do..
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Individuals don't have a want to issue 1099's. Hire a cleaning person to straighten up the house every week... don't 1099 her.... then run for an elected office.
Let me know how it works out... ;-)
"Individuals don't have a want to issue 1099's"It is nothing about want, it is that there is no need."Hire a cleaning person to straighten up the house every week... don't 1099 her.... then run for an elected office.Hire a cleaning person to straighten up the house every week... don't 1099 her.... then run for an elected office."If you HIRED a cleaning person then you would be in trouble for send a 1099. For an EMPLOYEE you need to send a W-2 along with the SS payements and income tax if any is withheld.http://www.irs.gov/publications/p926/ar02.html#d0e303"o You Need To Pay Employment Taxes?If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both. To find out,
read Table 1.You do not need to withhold federal income tax from your household employee's wages. But if your employee asks you to withhold it, you can. See Do You Need To Withhold Federal Income Tax? on page 6.If you need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax, read Table 2 on page 4 for an overview of what you may need to do. o You Need To Pay Employment Taxes?If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both. To find out,
read Table 1.You do not need to withhold federal income tax from your household employee's wages. But if your employee asks you to withhold it, you can. See Do You Need To Withhold Federal Income Tax? on page 6.If you need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax, read Table 2 on page 4 for an overview of what you may need to do. "About the 1099-MISC. From the IRS instructions.http://www.irs.gov/instructions/i1099msc/ar02.html#d0e65"Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements.".
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
"If you HIRED a cleaning person then you would be in trouble for send a 1099. For an EMPLOYEE you need to send a W-2 along with the SS payements and income tax if any is withheld."
She wasn't paid by the hour, but by the job. She's a sole proprietor.... ooops!
I send a 1099 to my accountant as he is not incorporated... should I be witholding taxes and SS from his payment instead?
"She wasn't paid by the hour, but by the job. She's a sole proprietor."How they are paid is not sole determination if they are an employee or not.She could still be an employee."I send a 1099 to my accountant as he is not incorporated... should I be witholding taxes and SS from his payment instead?"His he a independent contractor or your employee?.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Edited 4/28/2008 10:23 pm by BillHartmann
That's been my experience with the showroom I work thru.
When they were providing labor, all the installers were contract employees. When the largest client demanded Workman's Comp on all these installers, the company cut everyone loose and said they were on their own. The installers are now providing their own WC and contracting with the homebuilder directly.
They are being given 1099's by the builder. As a freelance designer I also usually get a 1099 from anyone who has paid me commission. However, my accountant says I don't really need one for filing. I figure those who do provide me one do so to maintain a clear record of who they have paid.
I've made so little these last couple of years I just pay the tax due on April 15. However, for anyone making a decent income, not paying those estimated tax payments throughout the year makes for a nasty shock at tax time.
Join a Union and You wont be beholding to this PRICK
Yeah, I probably should have about fifteen years ago.Webby
Writing biz checks payable to "cash"? I'd run from this guy. When he gets caught, you definately don't want to be involved.
Disclaimer: I'm not a CPA but I've been dealing w/self-employment and Schedule C for over 15 years.
You're getting screwed by this guy. If he considers you an independent contractor and paid you $600 or more last year he should have given you an 1099-MISC for the amount he paid you. You would then file a Schedule C for what you made and pay income tax and self-employment tax based on what you made. Self-employment tax is basically your share of Soc. Sec and Medicare plus what an employer would normally pay for you.
From what you describe, the IRS would probably consider you an employee rather than a subcontractor. Take a look at IRS Publication 15a, Section 2.
http://www.irs.gov/pub/irs-pdf/p15a.pdf
It describes the IRS guidelines for determining if one is an employee or and independent contractor. Then decide for yourself how you want to approach this guy. If he's paying you under the table and you don't report it either you need to figure how you're going to prove to the IRS you have paid your bills for the past year without having any income.
Good luck...
Edited 4/26/2008 6:22 pm by allaround
if you wish to be nasty if he is riding you to hard go to unemployment and file for your benefits, They will do all the paperwork for you and work with the feds and SS to straighten it all out. The way i understand the law is either one is an employee or a sub,. If a sub you must have your own insurance You cant be working 40 hours week after week you have to show you work for others, You set your own hours and here you need a lic. No lic, your not a sub.
webby,
Stay away from the UNION. Stay very far away. When you think you are far away, move away further.
Russell
"Welcome to my world"
I would not go the sub-contractor route for several reasons. 1) Your schedule C will not show any expenses. The IRS will not believe that you are a sub-contractor and will dig into this issue. 2) All of your income will be from one source. That will look fishy.
You are an employee, there is no way around it. Is this guy even filing a return?
If not there is a small chance both of you will get caught. But if you do it isn't pretty.
This industry is full of people who do not file. But if you get hurt good luck collecting any s.s. benefits. Can't collect benefits when you retire either.
Sounds like you are not covered by Workmens Comp either.
Now that you have experience I would find employment with a letgitiment contractor.
He is not being paid cash, he is being paid by company check made out to cash.
Being the guy cashing the check means nothing, if IRS calls tell them you cashed a check for him every friday so he could hide it from his wife.... he was repaying a loan you gave him... paying off a piece of equipment he bought.
The check writer is on the hook on this one. No matter how you slice it you can't deduct a check made out to cash as an expense, therefore you owe the tax as income.
Webby has this guy by the short hairs if he ever wants to make his life miserable.
Hey everyone, Thanks for all of the good viewpoints, and business info.
I think I stuck with this so long, because I wanted to see if this was a career path I wanted to go down. Plus no one was hiring my occupation still aren't, (cad draftsman).Not wanting to relocate, I kind of headed down this road out of necessity and investigation.
He Is a g.c. who works for himself. He takes on whatever jobs he feeels like doing.In the past year I have learned a few things. I am much more oriented to doing 2 to 6 hour jobs, more of a handyman attitude. I would rather not build a house from the ground up I would rather repair something or do smaller jobs. That is just my work style. I am more of a craftsman and detail oriented. I am trying to be precise about everything. Still, good experience. Allot of what we do I don't mind but, some jobs are alot to take on for just thetwo of us especially when I am the whole crew.
Don't get me wrong I am not a huge fan of the guy, he is arrogant, brash, bossy and opinnionated, sometimes he is just an @ss but I am not out to get him. I don't want either of us to get in trouble. I work very hard and he probably is taking advantage of me at times, but he hasn't really done me wrong.
I am not beingwithheld on, I have no insurance, and no workmens comp. I guess I feel like I don't want to ignore this any longer, I am not worried about last year because I filed from my previous employer.
Also since I was sort of playing it by ear, I wasn't sure how much I would work for the year, I didn't even know if I would make enough to file. So starting this year I have been recording my hours and what I get paid, in the day planner.
I will take the suggestions and info and talk to a cpa.
Webby
Edited 4/26/2008 8:37 pm ET by webby
Edited 4/26/2008 8:39 pm ET by webby
I think that it all depends on how much you want to pay and how much effort you want to put into it.
1- You leave it alone. Get a new job and work above board. This doesn't cost you anything, does not implicate your employer, costs the government relatively little (after all you are only making 12/hr.), and clears your conscience for the future.
2- You assume the full burden of being self employed. Since you haven't kept good records, this will cost you the most and be some amount of trouble, though an accountant could help a lot.
3- You can contact the IRS and explain the situation to them. This won't cost you much if anything but will put your boss in a very costly situation.
I know of a couple of contractors who got in trouble with IRS and it did not end well for them. One guy paid his crew in cash for a couple of years. He claimed they were subs. I believe that this was before 1099's were required. I don't know how he was caught but he ended up owing over 120k and lost his house and his business.
The other contractor was a painter that we used for 5 years. Every year we sent him a 1099. He had a small crew which he paid in cash. He was not insured for WC and we ended up paying for this every year as the GC. One day we got a notice from the IRS telling us to pay them for any work that he did for us. He owed them 55k in back taxes which was not that much less than the sum total of what we paid him over that period and a much greater amount than his employees would have paid. Needless to say there was no more work done and he went out of business.
I would have a hard time putting someone in this position especially if I went in with my eyes open. To give you the benefit of the doubt, you probably weren't fully aware of the moral dilemma in which you now find yourself. But you are now. At the very least you can't continue under this arrangement in good conscience even if your employer is legally responsible.
Webby did you collect un-employment from the first office job? Be aware that that is also taxable Income, with no withholding. Which seems totally unfair, your fired getting government assistance, and at the end of the year some needs to be paid back. A lot of people don't realize this, the state should be fined for no withholdings. If you did not receive un employment why not?
The IRS does not get too testy till about the three year mark, this is the point that if you over paid, you can not get money back, if you have not filed yet filed. If you overpaid they really don't care if you ever file, because they get to keep all over payments (N0 refund) past the three years. If you file with in the three year due date they will pay back an overpayment with interest.
But if you have no withholdings and do not file you are asking for it, interest and penalties are ticking away every day after April 15, 08 for the year 07. and a 3000 dollar bill can double or triple very quickly. You need a Enrolled agent at the least, an Enrolled agent is one that the IRS recognizes as to practice before them, it will be cheaper then a CPA. I don't think you are to CPA status yet. A good enrolled agent will let you know if he she can handle it, a lot of them work in partnership with CPA's. This will cost about 300 to clear up with a Enrolled Agent (it is a deduction). Get to an agent tomorrow scrape up as much cash as you can so to get a payment in as fast as you can to put the breaks on the interest. You are past the penalty part.
Here is one no cost source to Find a CPA or EA in your area, don't be afraid to ask fees up front.
http://www.daveramsey.com/sa/cpatax/index.cfm?FuseAction=dspStep1
Good luck, keep us posted, it can be a learning lesson for those on both sides employer-employee not paying withholdings. Like a priest or minister a CPA EA has heard it all before.
Wallyo
Wally
Go in with a list of questions keep it short and brief, either is going like a lawyer to charge you per hour while you are sitting in front of them, or talking on the phone. Stay away from the nice weather we are having stuff, and to the points.One other point if he just does not want to keep track of withholding and the book keeping with it, it a pain so I will pay Cash. Suggest a payroll service he just gives them the money and hours they do the rest, Costco even runs one.Wallyo
Edited 4/26/2008 9:47 pm ET by wallyo
webby'
What Bill Hatrman said.
The IRS has some basic qualifications as to whether you are an employee or a sub. If he can tell you when to show up and what to do, you are an employee. If you give him a price and set your own schedule you are a sub.
As an employer he must have a certificate of insurance for his subs, if you are a sub, that you provide.
Chuck Slive, work, build, ...better with wood
webby,
as a practical matter---- you don't have a big problem.
i would suggest you listen to Bill Hartmann here---he is a pretty smart guy--he is usually well informed in matters like this---- and I bet he can give you the proper pointers
what I would do is
I would not worry too much about 2007
Starting right now--for 2008--track everything. keep receipts for gas, receipts for tools, receipts for everything.
buy a small "artisan policy" from Erie insurance-it will cost you probably a couple hundred dollars a year for handyman type work
keep track of everything
save $15-20% of what you make
Next april--file schedule C---its fairly simple at your level.
you don't make much- i don't know about your dependents if any---you might even be in line for an "earned income credit"
all in all your tax obligation may be quite minimal-maybe even ZERO
suprize suprize- you are in business!!!-- congratulations!!!!!!!!
you are making what? $480/week right----you DO know you could earn that hanging ONE door---or painting ONE garage a week on your own, RIGHT?????
start focusing on that-- it sounds like that type of thing is what you are going to be happiest doing. concentrate on building referalls-and a reputation for being dependable and honest
ALSO-- go to staples or office max-----buy a little book" DOME weekly bookkeeping register"--it will cost you maybe $15.- USe it, it will keep you organized and make filing your schedule C pretty Easy.
Again--congratulations- right now you are at just about the point MOST of us started out at. congratulations--as of today YOU are in controll of your future
It's all YOU, baby!!!!!!
you are very lucky--the people here will answer just about any question you care to ask
Very best wishes to you,
stephen
Edited 4/27/2008 8:08 am ET by Hazlett
One thing that really bugs me is when guys get so caught up in avoiding taxes that they can't get ahead in their business. I've seen good carpenters--who could've made something of themselves if they flew above the radar and grew their business--waste their life limiting themselves to little under-the-table jobs because in their mind it just wasn't worth working if you had to pay taxes. Not much different than welfare fraud, really. And it gets you just about as far in life.If you want to be treated (and paid) like a professional, you have to act like one.edit to say this wasn't meant for you in particular Stephen. Just a general observation.Your post is great, by the way. I was amazed when I started how little you really had to do to be in business for yourself. But you soon come to realize how much you need to know that you don't yet, and there really seems to be no one who can help. The internet age is a godsend.Steve
Edited 4/27/2008 8:11 am by mmoogie
HAZLETT Not to worry about 07 is bad advice, in 4 years if the IRS audits him are you to foot the bill. You are talking the worst in there eyes tax evasion, that my friend gets fines, penalties, interest, and possible jail time when they what to make an example case to us all who is in charge.Believe it or not the IRS can go back to the beginning of your life, and put one through audit hell, everyone thinks it is 7 years, as an unspoken rule that is what they usually do. In fact they can go back as far as they want.What is he to put down on his 08 return in reference to 07?Sorry to be so hard.Wallyo
Stephen wasn't suggesting to dodge the 07 taxes. He was explaining that he was too late to get the full benefits of proper bookeeping in 07 and that the OP should start right now to maximize 08 writeoffs.It should be noted that it's legal to write off legitimate expense even if there are no receipts for them. The IRS might disallow them if audited but it's still not fraud. For instance, if you kept all your receipts in a shoe box and your house burned, you'd still be able to write off a normal amount of business expenses without fear of jail. Bob's next test date: 12/10/07
If that is what he meant I take my scolding back, You are right in that he says "I wouldn't worry too much about 07". Which after reading again can be taken two ways, don't file or do the best you can with it. But as you point out there is a lot of back tracking he could do for O7, cell phone receipts, milage a few thousand is reasonable even with out records, tools , computer, office supplies, bank fees, the list goes on. Also as you point out you only need it if audited. I am not talking fraud ie 20,000 income 25,000 expenses but on 20-25 income a few thousand in expenses is reasonable and expected. EA or CPA will advise best.Wallyo
Wallyo--
the OP was laid off last may---and is getting by on a $12/ hour "job" there isn't a lot of money-OR tax liability there---plus since it is late april--he has already filed for 07---and with an "earned income credit"--possibly the IRS owes HIM money!
so---don't worry about 07 poster is asking what to do NOW for 08---which is actually pretty simple, and at the level he is operating at--won't take much time at all.If he buys the Dome book keeping leger-which is completely idiot proof( personal experience there!!!)--- it will take him at MOST 2-3 minutes a day to stay orgainized at his level---plus a couple hours next april to do the taxeshis situation--at $24,000/year--just isn't that complicated.
basically he has a small business, no employees---taking in 24K a year------staying legit isn't rocket science and the guy doesn't need to be scared silly over something so simply taken care of.
stephen
HazlettI should of ask Webby more questions. The way the situation sounded from the start was he either did not file or filed without including the under table income. In post 103910.59 he clears that up a bit. If he is worried about withholdings he can make quarterly installment payments. But fails the self employment test, clearly.Wallyo
Edited 4/27/2008 9:01 pm ET by wallyo
Thanks again everyone for the good advice. Just to clarify I did receive unemployment in 07, and I did pay taxes on it.
I am keeping track of what I make this year. as far as expenses there really aren't any that I think I could deduct. I bring a few hand tools with me, but most tools I use are his. I can use mine if I want but why? If I can use his I am going to which also reinforces the employee argument. However s an aside, it po's me that he will not change the cicular saw blade. It has about four teeth missing on it.
Mileage, there really isn't any beyond what would be considered a normal commute.
Oh, and I am not married and have no dependents. Flyin' solo, baby!
The only hurdle I still have, and would likely have persued the handy man service sooner is that right now I don't have a truck. I would hate to find myself in a position of telling people yes I could do this but I can't haul the materials.
I am paying heavily on college loans and am paying on some minor credit card debt so I am still driving the college car. I graduated in 06. Laid off from my first job out of college in 07 took the unemployment applied for other jobs, and at the end of the u.c. called up the contractor/boss. I actually started more like july with him.
I also still live at my parents house, and have been helping them out. I am kind of the property manager, so to speak. My mother came down with degenerative m.s. in 2001 so I have been able to help them allot.
Otherwise I couldn't make it right now, the whole arrangement really dovetailed well, I keep the house repaired and running, also do the lawnwork. Whatever my dad might need on the spur of the moment.
I really appreciate this discussion I am learning alot.
Webby
Edited 4/27/2008 7:51 pm ET by webby
Edited 4/27/2008 8:00 pm ET by webby
Edited 4/27/2008 8:21 pm ET by webby
Don't deny taking milage, one of my favorite deductions, because I had generated a LOT in past yrs. IIRC it's up to .47c now ( I don't figgure my taxes, I have a CPA).Every bit helps. I DO have a dedicated "work" vehicle ( 2 actually) and they are deductible for every mile..having another vehicle for personal use is required, or else they "wonder" about personal miles.
As far as tools go, buy what you can afford, they are deductions, and MAKE you more $$ ( that you are taxed on..(G)) in the long run,,bigger expenses like trucks can be depreciated over time or one chunk..a GOOD thing.
Hell, you can show a loss for 3 yrs I think, before any red flags go up.
Make a game of it, get jiggy with keeping reciepts and tracking expenses..( forget the meals, ain't worth it, unless yer a traveling salesman)...they play hard, play back with a better game.Spheramid Enterprises Architectural Woodworks
"Welcome to Poo-ville, can I have your socks?Seriously Folks, I need a home for 3 lovers of your life.
webby,
look into section 179 i think it is called
MIGHT help you get that truck you need---AND lower your tax bill to about zip for this yearBet Bill Hartmann can explain it better than I canimportant thing to learn----spending an hour with a pencil and paper thinking things through--or doing a couple hours research-----OFTEN earns you more than a week of work- or a month of work with a hammer seriously--it will be that ability to sit down and think things through that will make you the most money. Very best wishes to you,
I would be suprised if you encounter a situation while doing this that someone here can't help you through
again-best wishes,
stephen
it po's me that he will not change the cicular saw blade. It has about four teeth missing on it.(quote)Well...that tells me more about the guy than all this other stuff......go git a job with a real carpenter.
I remember one time when we had to cut some old yeller pine stairtread in place. I started to cut 'n stopped because I knew the sawzall blade was dull, I told him about it and he said @#$, #@@$ just cut it. I think I physically shoved the sawzall thru the wood. I am laughing now, but I wasn't then.Webby
Webby Don't worry about your ride, The first work truck I had was a Hyundia four door sedan 4 years old my personnel car, after that a 1984 jeep Wagoneer, then a 1980 doge ram 4x4, both used all were paid for. Now I have a 2004 GMC 1500, loaded long bed paid for (large down payment, a loan for a couple of years, then paid the last 6,000 off in one shot. Never once did i not get a job based on what I drove. No one ever laughed at me, Those first three were beasts, spent more time in auto part stores then I cared to. But it worked for me at the time.Point is paint job no problem paint will fit in the car, deck refinish no problem, build a deck have materials delivered to the site. Get a job putting in a new patio door, have it deliveredDo a patio door replacement on a weekend 150-180 dollars. I was in your shoes retail management college degree from Rutger's in business Admin. Got tired of being laid off and jerked around. Chose what I love.Last question you did or did not file 07? If you did still talk to a tax professional you may want to amend your return with the deductions you can come up with, cell phone? MInn plan runs 500-700 a year, no need to pay taxes on that money.I do my own now hired a EA for the first ten years learned enough, no employees so I just use turbo tax Home and business now.Wallyo
On milage.You are allowed to as a contractor/ self employed person to deduct milage, for any business trip period. You can not deduct an office trip, in other words you are at home and have an off site office two miles away that you go to. That office is your home base so to speak, the milage home to office cannot be deducted, that is considered a commute. If you go to the office first, then to a job site two miles away, that four miles can be deducted. If you drive your kids to school then go to a job site the trip to school can not be deducted but school to job site can. On the clock off the clock so to speak.Not sure on this one but if you are an EMPLOYEE certain milage I think can be deducted if your boss is not reimbursing you for it. It is something like this, if you drive to his house every morning then go to the job site in your car the trip his house/ job site can be deducted if he is not paying you milage. The trip from job site to the hardware store for nails, deduction if using your car. I am not sure how it works if you go from your house to the job site directly each morning. Rules would be similar to a salesman not using a company car and not getting milage reimbursement.Either way check into it you may be missing on a lot. Another point if you are determined his employee and using your car for errands he should pay you milage. If he say "take my truck go to home depot for deck screws here is 20 bucks" woman runs a red light, injures you he is opening him self up for a massive law suit with out workmen's comp (say she has state min on insurance you injuries are more then that.. You were on company time doing as directed, by your boss. Even in your own car you would be on company time.Wallyo
Thanks for the mileage info. The way it generally works is I just come to the job.
He tends to get the materials himself. However somedays we do work at a couple different jobs.
Can't tell everyone how thankful I am for all the good advice, differing viewpoints and opinnions. I have alot more insight about what I need to do. I might check with a friend of mine who does acconunting work he is not a cpa, and come up with a plan. I can then go to a cpa with clear ideas.
Thanks everyone!Webby
"You are allowed to as a contractor/ self employed person to deduct milage, for any business trip period. You can not deduct an office trip, in other words you are at home and have an off site office two miles away that you go to.You are allowed to as a contractor/ self employed person to deduct milage, for any business trip period. You can not deduct an office trip, in other words you are at home and have an off site office two miles away that you go to."Not exactly.The rules for both an employee and IC are basically the same. The trip from home to the first business stop and from the last business stop to home are commuting miles and are not deductable.In some cases the home is the principle business location and thus they are starting at the business and there is no commuting miles. That holds for both employee and SE, but the SE are more likely to qualify.Also SE have more options in defining what a business stop is.http://www.irs.gov/publications/p463/ch04.html.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
My office is at home so I know what the rules are for me. But what you are saying is lets say I am a pharmaceutical salesmen. If I stay lets say in my county and work out of my house my first house to first sales stop, last stop to house is not deductible milage everything in between is?I was in no way trying to give the young lad the rules just trying to point out what he might be missing on.Wallyo
Maybe. That was the type of situation that I was thinking about.But one needs to do some research to see if an employee office in the home can be the "principle business location".That is why I carefully chose my words..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
you don't need a truck to hall things around. They make these things called trailors! You may have seen them. They are attached behind your car to a thing called a hitch.<G>
Go to tractor supply, they sell one that folds up for $300.00
Actually, to start out he might be better off just renting one as needed.
You should talk to a CPA or tax preparer ASAP. At the minimum, you should be getting a 1099 and the IRS can be pretty stickey about the whole "independent" contractor classification. If the boss is telling you where and when to work, and how to do the work, you probably aren't "independent" by IRS standards.
Overall in the end i made the right move in always being honest and above board in everything, looking back thats what got me the better jobs and separated me from the "pack", Sure theres people getting 8 bids and looking for someone to make a mistake but you dont want to be one of them anyway, A few times i almost went out but at the last moment when a job had to be done and done right i got the call, People instinctively know when a lowballer tells how hes going to cut corners for them that he is going to cheat them too. Lifes to short to have to look over your shoulder to wonder if the BI or taxman is coming.
If the fellow you're working for isn't filing a 1099 it's up to you how much or how little taxes you want to pay. If you don't claim the full amount the odds are very slim that you'll be audited on account of they have much bigger fish to fry. Probably the bigger risk is whether or not the IRS looks into his finances for one reason or other. If he gets audited the IRS might look into you if he's been writing you checks all along. He's technically not allowed to 1099 you if you've been acting as an employee, which sounds like the case. You'd just have to pay back taxes and a penalty if you get caught. He, on the other hand, has a bigger problem.
The employer would owe the taxes and the penalty unless he could prove that you were in fact a subcontractor.
If you are a subcontractor, you owe the taxes.
There may be a penalty for not filing a 1099 for a subcontractor but it can't be much. We sometimes can't figure out who we need to file for but have never had the IRS question us.
Webby has been acting as an employee, not a subcontractor, that's why the guy who hired him would have a problem. There are specific criteria that have to be met in order to qualify someone as a subcontractor. Chances are very good, based on Webby's description of the relationship, those conditions haven't been met. The employer is vulnerable not only on taxes, but insurance and licensing issues. Big fines coming his way.