Treating employees as nonemployees.

Let an Expert Do your Payroll – You will generally be liable for social security and  Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. The applicable rates depend on whether you filed required Forms 1099. You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. You continue to owe the full employer share of social security and Medicare taxes. The employee remains liable for the employee share of social security and Medicare taxes. See Internal Revenue Code section 3509 for details.   

Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Section 3509 is not available for reclassifying statutory employees. 

If the employer issued required information returns, the section 3509 rates are:

  • For social security taxes; employer rate of 6.2% plus 20% of the employee rate.
  • For Medicare taxes; employer rate of 1.45% plus 20% of the employee rate of 1.45%, for a total rate of 1.74% of wages.
  • For Additional Medicare Tax; 20% of the employee rate of 0.9%.
  • For income tax withholding, the rate is 1.5% of wages.
  • If the employer did not issue required information returns, the section 3509 rates are:
  • For social security taxes; employer rate of 6.2% plus 40% of the employee rate.
  • For Medicare taxes; employer rate of 1.45% plus 40% of the employee rate of 1.45%, for a total rate of 2.03% of wages.
  • For Additional Medicare Tax; 40% of the employee rate of 0.9%.
  • For income tax withholding, the rate is 3.0% of wages. 

Relief provisions. If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. See Publication 1976, Do You Qualify for Relief Under Section 530. 

Voluntary Classification Settlement Program (VCSP). Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). For more information visit IRS.gov and enter “VCSP” in the search box. As always we are available to help. For no obligation free consultation contact us today!

ABA Tax Accounting

info@abataxaccounting.com

651-621-5777

www.abataxaccounting.com

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Who Are Employees?

Let an Expert Do your Payroll – Generally, employees are defined either under common law or under statutes for certain situations.   

Employee status under common law. Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. 

Generally, people in business for themselves are not employees. For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. If an employer-employee relationship exists, it does not matter what it is called. The employee may be called an agent or independent contractor. It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. 

Statutory employees. If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Although the following persons may not be common law employees, they

are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions.

  • An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else.
  • A full-time life insurance salesperson who sells primarily for one company.
  • A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates.
  • A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. The orders must be for merchandise for resale or supplies for use in the customer’s business. The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. 

Statutory nonemployees. Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. 

H-2A agricultural workers. On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees.

For a Free Consultation call or email:

ABA Tax Accounting

info@abataxaccounting.com

651-621-5777

www.abataxaccounting.com

Published in: on May 17, 2013 at 2:39 pm  Leave a Comment  
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Why Outsource Your Payroll?

Strategic Domestic Outsourcing – Small-business owners have three basic options for processing payroll: the “do-it-yourself” method, bookkeeping software, and outsourcing to a professional payroll provider.

 

What makes outsourcing the better choice? Outsourcing reduces the complexity and risk of running your own payroll, while helping ensure greater accuracy, with up-to-date tax rates and regulatory information that can be lacking in a software solution.

Other advantages of payroll outsourcing include:

  • Compliance with government regulations
  • Online solutions
  • Data security
  • Additional human resource services
  • And more

Do you want to discuss how ABA Tax Accounting can put low cost and 100% U.S. based outsourcing solutions to work for you? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Managing Member

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll free

http://www.abataxaccounting.com

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www.abataxaccounting.wordpress.com

Published in: on October 22, 2012 at 12:50 pm  Leave a Comment  
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