Found an interesting article on independent contractors and tax law.
If you have your bench jewelers operating as independent contractor
in a retail store and they use your equipment on a schedule of your
making you’re probably not in compliance with IRS law. Evidently a
crackdown is on at the IRS. A jeweler in my town was hit with a big
fine a couple of years ago for this very reason. Food for thought.
Larry S
Found an interesting article on independent contractors and tax law. If you have your bench jewelers operating as independent contractor in a retail store and they use your equipment on a schedule of your making you're probably not in compliance with IRS law.
Where is the article? This is a problem for software contractors,
too. There are twenty factors the IRS considers. Google “IRS 20
questions”.
Al Balmer
Sun City, AZ
Found an interesting article on independent contractors and tax law. If you have your bench jewelers operating as independent contractor in a retail store and they use your equipment on a schedule of your making you're probably not in compliance with IRS law. Evidently a crackdown is on at the IRS. A jeweler in my town was hit with a big fine a couple of years ago for this very reason. Food for thought.
This is nothing new. The IRS has always focused on the
employee/independent contractor issue. And if you think about it,
it’s only logical.
The distinction between an employee and a contractor is
"independence".
If a worker is independent enough to provide his own tools and
accomplish the job on his own schedule, then he is also independent
enough to pay his own taxes.
If a worker depends on his employer because he uses his employer’s
tools and is given a working schedule, then the employer should also
be expected to withhold taxes from his employee’s compensation.
In the big picture, this issue regarding independent contractors is
similar to the issue discussed in the “Gold coin sellers angered by
new tax law” thread. Both of these expenditures require the business
owner to generate a 1099 when more than 600 dollars is paid (unless
it’s paid to an employee who receives a W-2 instead of a 1099).
In this thread, the 1099 is for labor, in the “Gold coin sellers
angered by new tax law” thread, the 1099 is for material.
If you think about it in this way, you would always be prepared for
an audit.
If you add up the 1099s you generate for materials, you should come
close to the material cost you report on your income tax. Likewise,
if you add up the W-2s and the 1099s you generate for labor, it will
come close to the labor cost you report on your income tax.
When comparing the amounts from the forms you generate and your
income tax, the dollar difference for labor is only going to be the
amounts paid that were less than 600 dollars. In the case of
materials, the difference is the amounts paid that were less than 600
dollars and the value of unused materials at year’s end.
If you have your bench jewelers operating as independent contractor in a retail store and they use your equipment on a schedule of your making you're probably not in compliance with IRS law.
Independent contractors are by law those who do work on their own
time, with their own equipment. The companies they work for then
file 1099s for them. Otherwise they are employees. Graphic designers
have been under this same confusion for many years. It was a way, and
still is for the unsuspecting designer, for companies to get around
paying benefits to graphic designers.
Valerie
contractors and tax
Also, you’re worker’s comp insurer will want to know how many
insured and uninsured independent subs you’ve got working on your
premises and that will affect your premiums. You had better know the
extent of your liabilities and what coverage you should have if an
independent sub gets injured while doing your work in your shop.
David L. Huffman
independent sub gets injured while doing your work in your shop.
If that independent sub is working in your shop is he /she
independent?
KPK
independent sub gets injured while doing your work in your shop.
If that independent sub is working in your shop is he /she independent?
Yes, a correctly classified independent subcontractor can work in
your shop and still be considered independent.
The IRS determines independence as: “Does he use his own tools?” and
"Does he set his own schedule?" Work location does not define
independence. But it’s highly doubtful that the IRS classification
would shield you from liability regarding a work related injury.
You can require an independent contractor to provide his own
Worker’s Compensation Policy in your contract with him. This is more
common if he works for multiple companies. In that situation, he
gives you a certificate of insurance from his Worker’s Compensation
Insurance provider, which is your evidence of protection from
liability in the event he has an accident. You show this certificate
to your worker’s compensation provider, otherwise they automatically
cover him on your policy.
Even if he provides his own insurance, I think an injured
independent contractor could still claim negligence on your part.
If that independent sub is working in your shop is he /she independent?
Maybe, maybe not. It helps support the argument that they’re a sub
if the sub sets their own prices, provides their own bench and tools,
set their own hours and pay rent for their spot.
The abuse of the system comes in when employers call people subs
when they really should be calling them employees.
But you know that.
Elaine
The IRS has 20 rules to determine if a jeweler is a sub or not. Come
& go as they please sets their own prices CAN HAVE OTHER OUTSIDE
ACCOUNTS plus others
if you hire a sub, you should check to be sure they pay their
quarterly taxes. if they or you get audited and the sub is behind on
paying their taxes and the IRS determines they aren’t a sub, YOU, THE
EMPLOYER can be held responsible for ALL of HIS taxes.
David Geller
Hi KPK
If that independent sub is working in your shop is he /she independent?
to the best of my knowlege, they can be considered an independent
sub if they are paying rent for the space with their own tools and
you can’t stipulate their hours or control when or how they get the
work done.
David L. Huffman
Don’t speculate.
http://www.irs.gov/businesses/small/article/0,,id’921,00.html
Al Balmer
Sun City, AZ
Here’s a link to the story. Sorry I didn’t post it in the first
place.
Larry S
if you hire a sub, you should check to be sure they pay their quarterly taxes. if they or you get audited and the sub is behind on paying their taxes and the IRS determines they aren't a sub, YOU, THE EMPLOYER can be held responsible for ALL of HIS taxes.
Much better to check to make sure they are an independent contractor
and that you treat them as such. Then you don’t have to worry about
their taxes. I’m not sure how you could check on that anyway,
without a cooperative judge.
Many large businesses are very careful. I’ve consulted at Eastman
Kodak, and it took a surprising amount of paperwork before they were
satisfied I wouldn’t be mistaken for an employee.
Al Balmer
Sun City, AZ
to the best of my knowlege, they can be considered an independent sub if they are paying rent for the space with their own tools and you can't stipulate their hours or control when or how they get the work done.
David, those added qualifications seem to me necessary to be an
’independent.
KPK
you can't stipulate their hours or control when or how they get the work done.
Hours of work can be specified by the client if there’s a reason,
such as consulting/cooperating/sharing with employees,
attending meetings, availability, etc.
A client certainly can control when a contractor gets the work done.
It would be unusual if a contract did not specify work product and
timeframe.
“How” the work gets done can be controlled only in the sense that
quality or adherence to the client’s standards can be specified.
It’s not simple, and the IRS considers the totality of a number of
factors. If you have time, you can ask the IRS to make a
determination before using the contractor. Unfortunately, it takes
about six months.
Al Balmer
Sun City, AZ
Hi All;
My definition of what constitutes an independant sub contractor is
not speculation, it’s what I can remember from talking to the agent
at the New York Department of Labor’s local office. I’d give a link
but I got the verbally and it hasn’t applied to my
business so I don’t have any documentation. This is not an issue I’m
completely ignorant of since my father-in-law was a labor lawyer
working for the Michigan Unemployment Agency and I’d discussed this
with him on a few occaissions, wanting to make sure that my present
situation is being handled correctly. I have an in house watch
repairman who rents a space from me. He does my work as well as work
for others, with his tools, on his time, however he wants, and simply
bills me, but my workers comp insurer requires me to list him as a
sub carrying his own comp insurance. If I were concerned about this
issue, I’d certainly go to the D.O.L for your state since it’s my
understanding there are some variations on the law from state to
state. D.O.L. are the ones who are going to enforce policy, but yes,
the IRS will be concerned with issues around FICA withholding. I
didn’t find anything helpful in Al’s posted link to the IRS, but I’ll
take another look.
David L. Huffman