Independent Contractor | Nesteggg Accounting

HIRE INDEPENDENT CONTRACTORS, NOT EMPLOYEES?

Many corporations, large and small, use independent contractors rather than employees for some jobs. They can provide flexibility, cut costs and reduce paperwork. However, if you’re not careful how you use independent contractors, you may have a tax problem with the IRS or State unemployment authorities and other potential problems with the Department of Labor, Wage and Hour Division or State Workers Compensation officials.

Independent contractors may not have to be included in fringe benefit coverage, including vacations, holidays, sick days, 401(k) plans, funeral leave or retirement plans. But the big advantage in using them is in the area of payroll taxes. For employees, you must withhold part of each paycheck, match the withheld portion and send both sides to the IRS. There’s also the accounting time and costs involved.

For independent contractors, compensation is simpler: You send checks to the workers. At the end of each year, you send information reports (Form 1099) to the contract workers and to the IRS.

The IRS, however, prefers that you classify workers as employees rather than independent contractors because it likes to have payroll taxes come in automatically and on time. Therefore, if there’s any doubt at all, the IRS will likely re-classify independent contractors as employees.

Misclassification of an employee as independent contractor can be costly.
If your corporation has been paying workers as independent contractors, but the IRS or State unemployment compensation officials claim that they’re really employees, you’ll owe back taxes, interest and penalties and also face possible tax liens.

How can you tell the difference between an employee and an independent contractor?
First, use a written Independent Contractors Agreement and be sure your independent contractor and your corporation sign the agreement. Next, the most important factor is control. If you have the right to control how and when a person works, that person is most likely an employee.

Another important factor is a worker’s risk of loss. A person who pays none of his or her own business expenses and is guaranteed regular compensation is likely to be considered an employee, but one who pays some expenses, with uncertain earnings prospects, may be an independent contractor.

Independent contractor agreements let companies fill necessary yet temporary positions without having to hire a full or part-time employee while avoiding the need to provide training or supplies. Independent contractors typically have more urgency and reason (as entrepreneurs) to provide a higher quality of service to warrant earning continued business. A well-written agreement will protect both companies and independent contractors from liabilities and lawsuits by clearly specifying respective roles, duties, payments, deadlines, and dispute resolution, among other procedures relative to the project and working relationship.

ick here to get a quote to prepare or review your independent contractor agreement.

“Do you happen to know a good electrician?”

…or plumber, or handyman… You know the drill, it’s 10:30 at night, you are scraping the last dish into the disposal when kerplunk! It makes an awful noise then grinds to a halt. Or worse, something comes the wrong way from a drain. Never pleasant, and never at a convenient time. Though it may seem expedient to call the first 4½ star rated company you find online, this may not be the best way to choose.

When something needs repaired, it seems like there is no time to make a considered decision, but being a wise consumer of services can save you headache, hassle, and possibly money down the line.

First Things First

Most of us have faith in the ‘word of mouth’ recommendation from someone we know. And this is a valid way to go about finding a workman or technician if you need help with a project. The next most common search method, “Google it” or, Yelp or other online search. Technology is great in helping you find lots of options. But then what?

Five is the Magic Number

Let’s say you are looking for a plumber and you do a quick Google search in your area. A list of plumbers will pop up, possibly with ratings, and certainly in alphabetical (sometimes geographical) order. Now that you have a list start calling. The optimal number of quotes you want to obtain is five, which we will explain later. But don’t just call the first five (now you know why there are so many businesses that start with A), mix it up, every third company, or only guys named Dave. Or close your eyes and point a finger at the screen. The idea is to get a random selection.

Now What?

Once you have identified the five, be armed with a set of questions. This is a sample of some questions you will want to ask, but DO ask questions, lots of questions. If they balk you may want to knock them off your list right away. If they don’t like answering questions before they have your business, they really won’t like answering them later if you have an issue.

Do you work in (your area)?
Do you fix/repair/install (your particular need)?
How much will it cost? (Quick note, if a contractor refuses to give you an estimate then move on. There is no reason they can’t give you an estimate for the job)
What if you find something else, how do you charge? By the hour, by the hassle, by location…
Who is in control of how much you will charge me?
How long will it take you? And if it takes longer, what will happen then, will you charge more?
What is your state contractor’s license? (BIG side note, anyone who does work for more than $500 for you should be licensed by the Contractors State License Board. If they are not, move on. Because if you have trouble down the road you will have no recourse if they are unlicensed. The contractor will be gone and you will be left with the problem.)
Do you carry insurance?
Who do I speak to if the problem/issue persists?

Now That You Have Your Five

All things being equal, take your list of five estimates and throw out the lowest and the highest. The lowball probably has hidden costs or hasn’t included everything in the estimate (remember, the cost of materials, labor, and living in your area is going to be about the same for all the companies you contact.) The highball offer, well they are either hoping you can afford it, won’t ask questions, or are willing to negotiate – but seriously, who has time to haggle.

Now that you have your three estimates, compare the tasks they will accomplish, the additional costs if something comes up, and how helpful/friendly they were in giving you an estimate. Now if all things are comparable, check on them. California’s Contractors State License Board has several tools, tips, and a look up for consumers. Make sure which ever one you hire has a valid, active license. You can also check the BBB in your location to see if there have been any complaints. If they have any customer reviews online, check those too – read a sampling of the good and bad reviews.

Now Choose

After you have done your legwork, time to decide. If a clear winner does not emerge from all your questioning then trust your gut. The company that gave you the most comfort and confidence in answering your questions is probably the right one for you.

IRS reminds employers, other businesses of Jan. 31 filing deadline for wage statements, independent contractor forms

IRS reminds employers, other businesses of Jan. 31 filing deadline for wage statements, independent contractor forms

WASHINGTON — The Internal Revenue Service today reminds employers and other businesses of the Jan. 31 filing deadline that applies to filing wage statements and independent contractor forms with the government.

The Protecting Americans from Tax Hikes (PATH) Act requires employers to file their copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by Jan. 31. The Jan. 31 deadline also applies to certain Forms 1099-MISC, Miscellaneous Income, filed with the IRS to report non-employee compensation to independent contractors. Such payments are reported in box 7 of this form.

This deadline makes it easier for the IRS to verify income that individuals report on their tax returns and helps prevent fraud. Failure to file these forms correctly and timely may result in penalties. As always, the IRS urges employers and other businesses to take advantage of the accuracy, speed and convenience of filing these forms electronically.

An extension of time to file Forms W-2 is no longer automatic. The IRS will only grant extensions for specific reasons. Details can be found on the instructions for Form 8809, Application for Extension of Time to File Information Returns.

The IRS noted that some employers who ordered paper information and employer returns may not receive them in time to meet the Jan. 31 deadline and should consider an alternate source for these forms. The IRS is filling these orders as quickly as possible. Click here for more information.

For more information, read the instructions for Forms W-2 & W-3 and the Information Return Penalties page at IRS.gov.

Seasonal, Part-year Workers Urged to Check Tax Withholding Amount

Seasonal, Part-year Workers Urged to Check Tax Withholding Amount

The Internal Revenue Service today encouraged taxpayers who work seasonal jobs or are employed part of the year to visit the Withholding Calculator and perform a “paycheck checkup.”

The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets. These changes do not affect 2017 tax returns due earlier this year, but they will affect 2018 tax returns filed next year.

Any changes that a part-year employee makes to their withholding can affect each paycheck in a larger way than employees who work year-round.

The Withholding Calculator, a special tool on IRS.gov, can help taxpayers with part-year employment estimate their income, credits, adjustments and deductions more accurately and check if they have the right amount of tax withheld for their financial situation.

The calculator asks about the dates of a taxpayer’s employment and accounts for a part-year employee’s shorter employment rather than assuming that their weekly tax withholding amount would be applied to a full year. The calculator makes recommendations for part-year employees accordingly. If a taxpayer has more than one part-year job, the Withholding Calculator can account for this as well. In contrast, the Form W-4 worksheets do not distinguish between part-year jobs and full-year jobs.

Using the Withholding Calculator

Taxpayers should have a completed 2017 tax return available when using the Withholding Calculator to help determine their proper withholding for 2018 and avoid issues when they file their returns in early 2019. Taxpayers also need their most recent paystub before using the Withholding Calculator.

Calculator results depend on the accuracy of information entered. If a taxpayer’s personal circumstances change during the year, they should return to the calculator to check whether their withholding should be adjusted. For taxpayers who work for only part of the year, it’s best to do a “paycheck checkup” early in their employment period so their tax withholding is most accurate from the start.

The Withholding Calculator does not request personally-identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, taxpayers should watch out for tax scams, especially via email or phone and be especially alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered.

Adjusting Withholding

If the calculator results indicate a change in withholding amount, the employee should complete a new Form W-4 and should submit it to their employer as soon as possible. Employees with a change in personal circumstances that reduces the number of withholding allowances should submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

The IRS encourages taxpayers to review additional details about withholding by visiting IRS.gov.

New Tax Law affects federal withholding calculations for 2018

Dear Valued Payroll Customer,

The Tax Cuts and Jobs Act made major changes to the tax law. Because of this, you and your employees should do a paycheck checkup using the Withholding Calculator on IRS.gov and, if necessary, complete a new W-4 form. The calculator will help determine the right amount of withholding and can help prevent having too little (or too much) tax withheld.

Recent changes affecting withholding include:

Reduced tax rates
Elimination of personal exemptions
Increased standard deductions: $12,000 for singles, $18,000 for heads of households and $24,000 for married couples filing jointly
Increased child tax credit: $2,000 per qualifying child and a new $500 credit for other qualifying dependents
Changes to itemized deductions

A paycheck checkup is especially important if you or your employees:

Are a two-income family
Have two or more jobs at the same time or who only work part of the year
Claim credits like the child tax credit
Have dependents age 17 or older
Itemized deductions in 2017
Have high income or a complex tax return
Have a large tax refund or tax bill for 2017

For more information, please see IRS.gov/taxreform. For updated withholding tables, please visit the IRS newsroom and the IRS withholding table FAQs.

We hope this information helps you stay in compliance and thank you for being a valued QuickBooks Payroll customer.
Sincerely,

The QuickBooks Payroll Team

Updated Withholding Calculator, Form W-4 Released; Calculator Helps Taxpayers Review Withholding Following New Tax Law

The Internal Revenue Service today released an updated Withholding Calculator on IRS.gov and a new version of Form W-4 to help taxpayers check their 2018 tax withholding following passage of the Tax Cuts and Jobs Act in December.

The IRS urges taxpayers to use these tools to make sure they have the right amount of tax taken out of their paychecks.

“Following the major changes in the tax law, the IRS encourages employees to check their paychecks to help ensure they’re having the right amount of tax withheld for their personal situation,” said Acting IRS Commissioner David Kautter.

The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions and changing the tax rates and brackets.

If changes to withholding should be made, the Withholding Calculator gives employees the information they need to fill out a new Form W-4, Employee’s Withholding Allowance Certificate. Employees will submit the completed W-4 to their employer.

“Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation,” Kautter said. “Taking a few minutes can help taxpayers ensure they don’t have too little – or too much – withheld from their paycheck.”

The withholding changes do not affect 2017 tax returns due this April. However, having a completed 2017 tax return can help taxpayers work with the Withholding Calculator to determine their proper withholding for 2018 and avoid issues when they file next year.

Steps to Help Taxpayers: Do a “Paycheck Checkup”

The IRS encourages employees to use the Withholding Calculator to perform a quick “paycheck checkup.” An employee checking their withholding can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time in 2019. It can also prevent employees from having too much tax withheld; with the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks.

The Withholding Calculator can be used by taxpayers who want to update their withholding in response to the new law or who start a new job or have other changes in their personal circumstances in 2018.

As a first step to reflect the tax law changes, the IRS released new withholding tables in January. These tables were designed to produce the correct amount of tax withholding — avoiding under- and over-withholding of tax — for those with simple tax situations. This means that people with simple situations might not need to make any changes. Simple situations include singles and married couples with only one job, who have no dependents, and who have not claimed itemized deductions, adjustments to income or tax credits.

People with more complicated financial situations might need to revise their W-4. With the new tax law changes, it’s especially important for these people to use the Withholding Calculator on IRS.gov to make sure they have the right amount of withholding.

Among the groups who should check their withholding are:

Two-income families.
People with two or more jobs at the same time or who only work for part of the year.
People with children who claim credits such as the Child Tax Credit.
People who itemized deductions in 2017.
People with high incomes and more complex tax returns.

Taxpayers with more complex situations might need to use Publication 505, Tax Withholding and Estimated Tax, expected to be available on IRS.gov in early spring, instead of the Withholding Calculator. This includes those who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents, and people who have capital gains and dividends.

Plan Ahead: Tips for Using the Withholding Calculator

The Withholding Calculator asks taxpayers to estimate their 2018 income and other items that affect their taxes, including the number of children claimed for the Child Tax Credit, Earned Income Tax Credit and other items.

Take a few minutes and plan ahead to make using the calculator on IRS.gov as easy as possible. Here are some tips:

Gather your most recent pay stub from work. Check to make sure it reflects the amount of Federal income tax that you have had withheld so far in 2018.
Have a completed copy of your 2017 (or possibly 2016) tax return handy. Information on that return can help you estimate income and other items for 2018. However, note that the new tax law made significant changes to itemized deductions.
Keep in mind the Withholding Calculator results are only as accurate as the information entered. If your circumstances change during the year, come back to the calculator to make sure your withholding is still correct.
The Withholding Calculator does not request personally-identifiable information such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, watch out for tax scams, especially via email or phone calls and be especially alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered.
Use the results from the Withholding Calculator to determine if you should complete a new Form W-4 and, if so, what information to put on a new Form W-4. There is no need to complete the worksheets that accompany Form W-4 if the calculator is used.
As a general rule, the fewer withholding allowances you enter on the Form W-4 the higher your tax withholding will be. Entering “0” or “1” on line 5 of the W-4 means more tax will be withheld. Entering a bigger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.
If you complete a new Form W-4, you should submit it to your employer as soon as possible. With withholding occurring throughout the year, it’s better to take this step early on.

More information

This spring and throughout the year, the IRS will be working closely with businesses as well as the tax and payroll communities to help educate the public about the new withholding guidelines and the Withholding Calculator.

For 2019, the IRS plans to make further changes involving withholding. The agency will work with businesses and the tax and payroll communities to explain and implement these additional changes.

HIRE INDEPENDENT CONTRACTORS, NOT EMPLOYEES?

“Do you happen to know a good electrician?”

IRS reminds employers, other businesses of Jan. 31 filing deadline for wage statements, independent contractor forms

Seasonal, Part-year Workers Urged to Check Tax Withholding Amount

New Tax Law affects federal withholding calculations for 2018

Updated Withholding Calculator, Form W-4 Released; Calculator Helps Taxpayers Review Withholding Following New Tax Law

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