Tag Archives: W-2

When to Hire and When to Contract

In our last blog, we reviewed the differences between an independent contractor and a standard File employee taxesemployee.  In this blog you will learn which type best suits your needs.

You’re a small business owner and you’ve become quite successful. You have a small staff that is already working full-or part-time, but you’ve got some small specialized tasks that need accomplished. Your secretary is available to finish what needs to be done, but you also realize she is not particularly creative. At this point, you know it isn’t exactly fiscally responsible to hire another employee, but you need some more help.

It sounds like you may need an independent contractor.  Basically, an independent contractor comes into your company when you have a finite amount of work that needs to be finished.  You may also have budget constraints that make hiring another employee impossible.  With an IC, they are typically paid by the job and on a short term basis, so most of the time you don’t pay high insurance premiums for them.

Another advantage to the IC is that they typically supply their own tools.  There’s very little need to supply office space, supplies, or utilities.  Also, an IC is responsible for his own tax liability thus alleviating the necessity of filing extensive forms with the IRS.  Essentially, an IC is brought into a company when there is specialized work that needs to be done and the amount of work does not justify bringing on another employee.

An employee is brought on when the workload has become too much for the company, the budget allows for it, and the amount of work will be ongoing.  If you expect the boom in business to be temporary, then a seasonal employee sounds like it may be a good fit.  However, if you have some press releases that need written, or a new blurb written for your advertisements, an independent contractor is most likely going to be the right fit for your business.

As always, consult with an accountant or a tax attorney before making any tax decisions for your company.  For any independent contractors in need of 1099 assistance, please contact us!

Just as for your employees you need to report salary paid on Form W-2, for contractors you will need to file form 1099-MISC to report payments made during the year. Use OnlineFileTaxes.com for all your 1099, 1098, or W-2 filing needs.

Resources:
Forbes
IRS
Legalzoom
SBA

Link

Your business is up and running and you’re finding yourself getting busy. You know you need morehelp, but you’re unsure if you want to hire an employee or bring in an independent contractor.  You might also be wondering the difference between the two. It’s very important to discern the status of these workers as that status makes all the difference for your company and your taxes.
1099
 We’ve compiled a list of the primary differences between the two and have listed them here for your reference. We hope you find it helpful as you decide which is best for your business.

  1. By law, you’re required to withhold taxes for an employee. These include Social Security and Medicare taxes as well as the unemployment taxes you’ll need to pay for an employee.  There are no such requirements for an independent contractor.
  2. An employee is obligated to follow the rules of the company about when they work, how they work, and where they work.  An independent contractor provides a service but is given little instruction about how or where to work.
  3. An employee rarely has the opportunity to hire people to work under him if the workload is too intensive, where as an independent contractor has that ability.
  4. An employee is typically paid an hourly wage or a salary with a specified pay schedule.  An independent contractor is paid for the service he provides in a lump sum.
  5. For an employee to travel or go above and beyond normal duties, you, as the employer must reimburse the employee for mileage or travel expenses.  An independent contractor incurs their own expenses as those are typically built into the fees for the project.
  6. Unless otherwise approved by you, an employee typically works only for you.  An independent contractor may work for many different people and/or businesses.
  7. For an employee, the employer is required to provide the equipment needed to get fulfill the job duties whereas independent contractors provide their own equipment.

Hiring an employee or an independent contractor comes down to a matter of preference. And there are many nuances to each of these factors. We recommend consulting an attorney for specific legal advice and guidance before proceeding.

Should you decide on independent contractor, be sure to check out the services we offer for filing the required tax documentation – a 1099.

Resources:
IRS
Legalzoom
MDC

Hiring a Seasonal Employee: Know the Rules First

Rajeev blog photoIf you’ve got a business operating on limited hours, then chances are you’ll need to hire a seasonal employee. Before you hire, make sure you’re educated! You don’t want to hire someone and have to redo all of the paperwork or be responsible for the taxes you didn’t take out.
Here are some tips and tricks to help you out when tax seasons rolls around again.

1. Make all employees responsible for filling out the proper tax forms for their type of employment. If you have questions, the IRS and DOL have incredibly user friendly websites that can help you determine what forms you will need for each type of potential hire.

2. Seasonal is a time limit, not necessarily an employment status. Seasonal employees are able to work full time hours. You are able to utilize your seasonal staff for full time labor, as long as you comply with labor laws.

3. Within the Department of Labor, seasonal employees have the same rights as regular employees. You are still subject to wage laws with a seasonal employee. You don’t want to be responsible for an unfair workplace violation due to mistreatment of a seasonal employee.

4. Know the difference between a seasonal employee and an independent contractor. A seasonal employee is one who is hired into your company on a seasonal basis, for example: spring harvest season or the end of year holidays. An independent contractor is someone who works as needed for a company under terms specified in a contract or agreement.

5. Ensure that your seasonal hire is not surprised by the termination of their position at the end of their season. Avoid the snafu of wrongful termination by supplying your seasonal employee with clear cut terms and conditions regarding the basis of their hiring within your company.

All too often, companies can fall victim to tax complications as a result of hiring seasonal employees. Before hiring, do your research using all of the options afforded to you including the IRS and DOL websites. Don’t get caught up in complicated legal battles and owing taxes for employees that you under-taxed. As always the best offense is a good defense. Know your rights and know the rights of your employees. Make sure that you issue a form 1099-MISC at the end of the year to all your contractors, just like you would issue a W-2 to all your employees.

When it comes to tax time, contact us for assistance with your e-filing tax needs.

Sources:
http://smallbusiness.chron.com/ways-pay-seasonal-employees-13816.html
http://www.dol.gov/dol/topic/workhours/seasonalemployment.htm
http://www.optimum-solutions.com/payroll/part-time-seasonal-and-temporary-employees
http://www.moneythinking.com/2010/12/30/tax-tips-for-seasonal-employees/

I’M NOT SURE IF I SHOULD USE A 1099 – HOW DO I KNOW FOR SURE?

The 1099 form covers many different types of payments made to individuals or companies, and there are different requirements and different forms that will cover them. There is a long list of these, such as the 1099-PATR, which is used for ‘Taxable Distributions Received from Cooperatives’.

For the vast majority of individuals and businesses, though, the 1099 requirements are quite simple (compared to many IRS rules). If you pay more than $600 for legal services or other professional services, or for any subcontractor you must issue a 1099 for that person or business.

You also must issue a 1099 for any rents paid for real estate. This applies to any real estate rented, no matter what the purpose is.

The $600 is cumulative as well. If you pay John Sloan Network Specialist 4 smaller amounts of $235 per service, he will still need to receive a 1099 because he received a total of $940. Anything above $600 that you are paying to any independent contractor or for any services must be reported, no matter how the money is broken up.

1099 requirements also include gaming prizes, royalties from the sale of physical or intellectual property.

Most of the other types of 1099 forms are used by specific industries or institutions. This includes sub forms like the 1099-INT, which designates interest received from investments like treasury bonds, stocks, notes and more. Depending on your investment structure they would be the ones handling this form.

The 1099-MIC is the most used form and as a business or an individual that is most likely the one you will see. For a business, there are some exceptions to the $600 rule. They include payments to corporations except under very specific conditions.

Wages paid to regular employees are already covered by W-2 forms.

Business travel allowances and per diem expenses do not fall under 1099 reportable payments.

You do not have to track money spent on merchandise, freighting, storage or telephony. And, if you rent from a real estate agent you do not have to report that via 1099; it is their job to issue the 1099 to the landowner.

The 1099 form is used for trade or business reporting only. Personal payments are not reportable. According to the IRS, you are engaged in a trade or business when you operate for profit or gain.

Payments made for life insurance protection or to a tax exempt organization (such as an IRA), and ‘payments made to or for homeowners from the FHA Hardest Hit Fund . . . or other similar state program’ (from the IRS, instructions on 1099).

One more requirement which will only apply to a small number of businesses that are engaged in wholesale as well as retail operations. If you sell over $5000 of consumer products (let’s say leather knife sheaths) to a buyer so he can resell the goods and he does not have a permanent retail establishment you must report the sales via a 1099 form.

This type of client may be on a mobile circuit, such as a fair or some other type of traveling business like Renaissance Fairs. It applies to anyone who buys wholesale from you who does not have a permanent brick and mortar operation.

The golden rule is the $600 rule. If you paid a contractor or other service, you will need to issue a 1099. If you do not you will not be able to deduct that person’s work on your taxes.

If you are a contractor, keep track of how much people pay you. If you did over $600 for any company, it is more than likely that they will be sending their form 1099 in, even if for some reason you don’t get it.