Anyone out there to answer a tax question???

[disneyatl]

My employer informed me yesterday that he will begin paying me on a 1099 basis - no taxes withheld.

Best way to begin is to give a bit of history....I'm an administrative assistant working for a small real estate company. I'm the only employee in the office that has been having taxes withheld and has company provided insurance. This was arranged through a partnership the owner has with another company - the other company added me on their benefits as an employee. Well, the partnership is being dissolved, therefore, my insurance benefits as well as taxes being withheld are being dissolved.

Beginning, March 1st my employer will begin paying my salary direct, meaning no taxes withheld, I'm assuming as an independent contractor. He is searching for insurance for both of us but not sure of the cost details at this point. However, my concern is with taxes and the 1099. I feel like I do not make enough money and should not be considered an independent contractor with my current position. Guess my questions are this....

I understand I will be paying for my own taxes probably as estimated taxes quarterly. Will I be paying self employment taxes? Being paid twice a month, will I basically need to set aside one entire paycheck to cover my taxes?

Any help anyone can give would be appreciated.

Lisa

 

[mickeyfan2]

My employer informed me yesterday that he will begin paying me on a 1099 basis - no taxes withheld.

Best way to begin is to give a bit of history....I'm an administrative assistant working for a small real estate company. I'm the only employee in the office that has been having taxes withheld and has company provided insurance. This was arranged through a partnership the owner has with another company - the other company added me on their benefits as an employee. Well, the partnership is being dissolved, therefore, my insurance benefits as well as taxes being withheld are being dissolved.

Beginning, March 1st my employer will begin paying my salary direct, meaning no taxes withheld, I'm assuming as an independent contractor. He is searching for insurance for both of us but not sure of the cost details at this point. However, my concern is with taxes and the 1099. I feel like I do not make enough money and should not be considered an independent contractor with my current position. Guess my questions are this....

I understand I will be paying for my own taxes probably as estimated taxes quarterly. Will I be paying self employment taxes? Being paid twice a month, will I basically need to set aside one entire paycheck to cover my taxes?

Any help anyone can give would be appreciated.

Lisa

Are you getting a substantial pay raise. You will now owe more in social security. I believe it is 11%. Plus you health insurance will be costly. You will need to open an account to put your taxes into. This is not any back account but a specific type for taxes that is approved by the IRS. You need to figure out what tax bracket you are in and put that much from each paycheck (and state if appropriate) to get the required 90% to avoid penalties. Unless you get substancially more, I might consider a career change.

 

[brerrabbit]

What it means is if you don't get an increase in pay you will be loosing money on the deal. You will now be responsible for the half of the SS taxes that the employer was paying. I forget the exact number but I think its around 15% and in normal situations they deduct 7.5% from your check and the employer matches it and sends it to the government. As a 1099 wage earner you will now be responsible for the entire 15%. Additionally if you get insurance as a an individual then most certainly you cost for that would go up. It's not an unmanageble situation but I would at a minimum ask for the additional 7.5% you will have to pay be given as an increase in the amount you are paid. You will have to submit taxes, both federal and SS and medicare on a quarterly basis so make sure you set those aside out of your pay every paycheck you receive. As far a how often you are paid is something you would have to work out with whoever is paying you.

 

[salmoneous]

First of all, the difference between being a 1099 employee and a W-2 employee is long and complicated. It's not something decided on a whim. Your boss has certainly carefully reviewed this with her lawyer and I would think you are entitled to see that analysis.

From your standpoint, there are a number of differences; you've identified two big ones. You are now responsible for administering your own taxes. Kind of a PITA and something you should be compensated for taking on, but not a big deal. However FICA taxes *are* a big deal. Unless some sort of arrangement has been made, you now owe your full share.

Time to have a long talk with your bosses about their intentions. Hopefully, there are planning to "make you whole" from the change. But they need to explain exactly how they intend to do so. Otherwise, you are losing some rights, getting more work, and taking an effective pay cut. (As a point of fairness, being a 1099 does have some tax advantages in that you might be able to deduct a few expenses you can't as a W-2).

 

[mom2boys]

It is highly unlikely that a person in a position such as the one you described would be not be considered an employee by the IRS.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors...
Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

Who is an Employee?
A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.

Who is an Independent Contractor?
A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

The IRS link provides specific examples of each type of worker. If your boss insists on treating you as an independent contractor and you decide to stay at the job, you should make estimated tax payments to the IRS & probably your state on a quarterly basis.

 

[Poohgirl]

Not to mention that "technically" it is not even legal. Unless you determine your hours, when, and where you want to work claiming you as an independent contractor is considered a type of "tax evasion" you will not get in trouble, but if they ever get audited or you complain. They could. Also as for taxes you would at the very least need to get an additional 7.65% (1.45% med 6.2% SS) increase in pay just to cover the "employer" taxes that you will now be responsible for yourself. Not even to mention the benefit side. As an accountant I would strongly recommend that if there are other jobs in your field that you could find a new one...do so... being a 1099 "employee" is a big headache.

 

[HonestAbe]

Everyone here has made excellent observations. I can tell you from the other side (the guy who hires the contractors and consultants) that they pocket SIGNIFICANTLY more than I do as a regular FTE. This covers taxes, SS, etc.... in the end they still make more than me but I like to hire people who are smarter than I am and make them work hard so I look good. That's just good business.

You need to be making a lot more than you do now if they are pulling the plug on this. There is no reason your boss shouldnt be able to provide you with exact details on how much he was putting into health care as well any retirement than pass that on plus more. The reason is you will be paying a lot more directly out of pocket then he was doing through the business and he has experience writing that kind of stuff off. You dont.

Maybe it's time to talk to a tax advisor or if you dont feel comfortable, time to look for another gig.

 

[mickeyfan2]

Everyone here has made excellent observations. I can tell you from the other side (the guy who hires the contractors and consultants) that they pocket SIGNIFICANTLY more than I do as a regular FTE. This covers taxes, SS, etc.... in the end they still make more than me but I like to hire people who are smarter than I am and make them work hard so I look good. That's just good business. .

They also need to fund their own retirement, have many more months of unemployment, so the "extra" money is not as much as you would think.

 

[DisneyTarheel]

A bit of light ( ) reading you may find helpful:

http://www.irs.gov/taxtopics/tc762.html

 

[disneyatl]

I knew I'd get some advise from the Disers here. You guys are always great! I need to sit and sort through a lot with my employer. Thanks for all the great advice.

Oh, BTW, I've asked human resources and found out that the company pay 80% of my insurance, I pay 20%!!! Something will definitely need to be done about that! I can't afford to pay $1500 a month for insurance at my current salary rate.