Comments on: Contractors must really be independent!

By: Mason Smith

Mason Smith — Tue, 18 Aug 2020 15:30:04 +0000

It’s good to know that the contractor should bring their own tools and supplies. My spouse and I are thinking about renovating our home this year to make it more modern. We need to find a local contractor that has a lot of experience with what we’re trying to do.

By: Jarom Linton

Jarom Linton — Thu, 02 Jul 2020 20:36:11 +0000

I love that you talked about working with a contractor that is under a written agreement. My uncle is going to do some renovations in his office so that it looks more modern. He needs to find a local contractor that is willing to work closely with him until this project is done.

By: Frank Ball

Frank Ball — Mon, 30 Dec 2019 20:58:04 +0000

It’s good to learn that an independent contractor must supply their own tools for work. My brother is interested in working as an independent contractor. I’ll be sure to tell him that he’ll need to supply his own tools for the jobs he works.

By: Brendan Shelton

Brendan Shelton — Wed, 31 Jul 2019 12:19:26 +0000

It’s interesting that you talked about how independent contractors should work under written contracts with the company. My son wants to hire a contractor to help him with the construction of a new office this fall and we’re trying to find all the information we can about the process. We will remember this information while moving forward with the construction process.

By: Dave Berkus

Dave Berkus — Fri, 24 Jan 2014 21:16:43 +0000

In reply to F Mann.

The IRS is concerned because companies save by not paying the FICA, FUTA or Medicare taxes for contractors. Yes, upon receiving a 1099, contractors should report the earnings and pay both the employee and employer taxes, making the IRS almost whole (FUTA not included) – but many contractors never report. Since companies must withhold income tax as well, those contractors who never report never pay any of the taxes. So the IRS focuses upon the companies issuing the cash, and penalizes them with a stiff stick – 25% penalty, interest, and a forced payment of both the employee and employer taxes. Since the contractor who should have been an employee would have paid only 1/2 of the taxes if classed as an employee, this penalty is doubly hurtful upon the employer who misclassified the errant employee as a contractor to avoid “some” tax. Over time, this gets to be a very large amount indeed. And no-one wants to receive a notice from the IRS, which has the power to pierce the corporate veil and go after owners AND members of the Board of Directors of a company.

By: F Mann

F Mann — Fri, 24 Jan 2014 00:09:09 +0000

Contractors pay FICA and Medicare directly to the IRS anyway. Do they get more $$ when it comes from the company?

Is the issue the 1/2 of FICA I can deduct on my 1040 which lowers my personal tax bill?

By: Mike Stuhley

Mike Stuhley — Tue, 23 Apr 2013 16:28:51 +0000

Good article. An issue almost everyone has to deal with.

By: Harry Keller

Harry Keller — Tue, 23 Apr 2013 15:51:25 +0000

Excellent advice!

I’ve been on both sides of this issue. In addition, my partner has an M.S.T. (that’s taxation). Small business owners tend to seek many ways to save on IRS taxes.

If you run a business from your home, how does the IRS know how your phone bill should be split? We have a single phone on a separate bill that’s designated as personal. Our phone lines come directly from Verizon, and a business cell phone does to — set up so that all of these appear on one bill.

While the new rules are different, when I was doing independent contracting, I was careful to obey these rules. Sometimes, I ran projects for clients and had their employees doing work on them. However, I never did or even participated in performance or salary reviews. I reviewed the work, not the person.

I recently completed the Goldman-Sachs 10,000 Small Businesses program, and a few hours were devoted to this very issue because it’s so important and no misunderstood. It’s also very easy to avoid breaking the rules if you know them. It’s not worth avoiding those FICA and Medicare fees if the person is actually an employee.

We currently have sales contractors and take great care with the rules.

Let me finish with this thought. You never want any trouble with the IRS. They have powers not available to other government agencies.