Posted on Fri, Dec 28, 2012
The minimum wage in the state of Washington will rise to $9.19 on Jan. 1, 2013. Employers can pay 14- and 15-year-olds a lower wage of $7.81 per hour, or 85 percent of the minimum wage.
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Posted on Thu, Oct 13, 2011
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1099-MISC is an information return that the IRS requires for certain business transactions.
The 1099-MISC shows miscellaneous income, such as payment to non-employees for services performed. For example, a business could issue a 1099-MISC to show payment to a subcontractor. The
IRS website lists many other uses of the 1099-MISC, as well as the amounts that are reportable and due dates.
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Posted on Thu, Aug 04, 2011
If you’re a small business owner, you may be the last person to get paid after all bills have gone out and you’ve met payroll for your employees. But depending on your business structure, you may also need to add yourself to your company payroll. It’s important to completely understand the structure of your business and classify yourself properly. You should consult your accountant or attorney for advice. With that said, the Internal Revenue Service provides general guidance for business owners on the subject. Here are a few of the main points from their website:Sole proprietorsIf you are a sole proprietor of your business, use a draw account to show money or other forms of payment you take from your business.
Todd Schmitt, controller of Patriot Software, Inc., added that sole proprietors looking for a consistent compensation method can use a weekly, bi-weekly, or monthly draw schedule. As a sole proprietor, you can supplement your income quarterly or annually, based on your business performance during the period, Schmitt says.
Partnerships
If you are a partner in a business, you are not considered an employee. You should also use a draw account to show money you take from the business, the IRS says.
According to Schmitt, partners can take "guaranteed payments" for service rendered. Since they are not considered employees, there are no withholding taxes to worry about. Payments are deductible by the partnership (unlike draws for a sole proprietor). These payments are considered taxable income to the partner for both income taxes and self-employment taxes. As a partner, you can also receive certain fringe benefits from a partnership, though you must report the value of such benefits as taxable income personally, Schmitt says.CorporationsIf you are a corporate officer, then you are generally considered an employee. (And as an employee, you would have payroll deductions for income taxes, Social Security, Medicare, etc.) However, according to the IRS, “an officer who performs no services or only minor services, and who neither receives nor is entitled to receive any pay, is not considered an employee.” For more information, refer to "Who Are Employees?" in Publication 15-A, Employer's Supplemental Tax Guide.Note: How do you know how much to pay yourself? The IRS has a standard called “reasonable compensation.” According to the IRS, “wages paid to you as an officer of the corporation should generally be commensurate with your duties.” For more information, refer to “Employee’s Pay, Tests for Deducting Pay” in Publication 535, Business Expenses. A word about treating yourself as a nonemployee: If you issue a 1099 to yourself instead of adding yourself to your payroll, you may be liable for Social Security, Medicare, and income tax, as well as a possible trust fund recovery penalty if the IRS determines you should be an employee instead. Read More
Posted on Fri, May 27, 2011
Here's a payroll question: How do you determine who is an employee?
The IRS defines who is an employee or an independent contractor, and it all depends on the relationship between the employer and the individual. It’s important to classify them properly, but it can be tricky. Here’s an example: Joe Smith has committed to more construction jobs than he can handle, so he decides he needs help. Joe asks Frank to perform labor on a job site, providing all the saws and hammers Frank needs and ordering all materials to the site. He doesn’t have Frank sign any contracts, but shows Frank exactly how he wants the structure to be built.
While Frank is at work, Joe stops by and checks on him periodically. At one point, Joe makes Frank redo a wall he’s constructed. When the job is complete, Joe writes Frank a check for the agreed-on amount and says good-bye. At the end of the year, Joe sends Frank a 1099-MISC showing what he was paid. Is Frank an independent contractor, or in fact, an employee? According to the IRS, “Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action.” Why is this important? If an individual is an employee, employers are required to take out payroll taxes from their paychecks, deposit the payroll taxes according to schedule, and issue W-2s. If you misclassify an employee as an independent contractor, you may wind up owing employment taxes for that worker. By the IRS definition, Frank is an employee of Joe Smith. Joe determined the work that would be done and how it would be done and provided tools and materials. Instead of treating Frank as an independent contractor, Joe should have set up Frank as an employee in his payroll system, deducted payroll taxes and any other applicable taxes, and given him a W-2. For more information on employees and independent contractors,
visit the IRS website.
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Posted on Fri, Apr 15, 2011
Good news for small business owners -- President Obama has signed the repeal of the controversial new 1099 reporting requirements.
The proposed reporting requirements were part of the Affordable Care Act, and would have required all businesses to issue 1099-MISC forms to vendors for all services as well as goods over $600. The repeal of this law saves small business owners and payroll administrators from a burdensome amount of added paperwork.
Here's how the law stands now: you must issue a 1099 to anyone who is not an employee (excluding most corporations) if you pay them more than $600 for their services only.
"With this bipartisan effort, we have removed a requirement that would have been an undue barrier to small business growth," said Karen Mills, administrator of the Small Business Administration in a blog post about the 1099 repeal.
For more information about the current 1099 requirements for independent contractors, visit the IRS website. Read More
Posted on Thu, Mar 17, 2011
Attention small business owners -- the IRS has a new tool to help you remember not to forget to pay your taxes! If you have trouble recalling when to make your monthly payroll tax deposit, try the IRS Calendar Connector, a nifty little program you can download quickly from the IRS website. Calendar Connector will remind you of whatever tax deadlines you tell it to, including payroll tax deposit deadlines. You first need to download Adobe Air for the IRS program to work, but then you can be up and running in minutes. You can even check in with the Calendar Connector when you’re offline.Tailor the program settings according to your own business needs. For example, are you a monthly or bi-weekly depositor for your business payroll taxes? Do you need to remember the date that your 1099s are due, or when to file the 1040 (as if you could forget that?) Calendar Connector will help you recall any weekly, monthly, or annual tax due dates for your small business.You can choose what types of taxes you get to see: all taxes due, general taxes, employer taxes, or excise taxes. Set the program to automatically update any IRS changes and start as soon as your computer starts up Here’s the best part -- Calendar Connector is free. So now there’s no way you can forget to make that payroll tax deposit!
Photo credit: Ronaldo Taveira
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Posted on Mon, Oct 04, 2010
It’s no secret that the IRS is cracking down on Independent Contractor misclassifications. There are currently two pieces of legislation in Congress addressing this issue. The Employee Misclassification Protection Act (H.R. 5107 and S. 3254), was introduced this past April. This proposal would require employers to keep records of independent contractors who work for them, and impose special penalties for the misclassification of independent contractors who should be employees.
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Posted on Mon, Feb 22, 2010
The Internal Revenue Service estimates it has lost $34.7 billion in unpaid taxes because contractors have been misclassified as 1099 independent contractors (IC) instead of W-2 employees. In one year, the Government Accountability Office estimated that misclassification cost the federal government $4.7 billion in income taxes. Understandably, the IRS has made it a priority to investigate the issue of worker misclassification and has ramped up their audit staff.
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Posted on Thu, Feb 18, 2010
The best way to be sure that you are correctly classifying your workers is to use IRS Form SS-8 “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.”
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Posted on Mon, Feb 15, 2010
When a person is paid on the form W-2, the employer automatically withholds from the payroll and pays all of the necessary employee income taxes as required by the IRS. These taxes include: Federal Income Tax, State Income Tax, and FICA (Social Security and Medicare). In addition, the employer will pay all of the necessary employer taxes. These taxes include: FICA (Social Security and Medicare), FUTA (Federal Unemployment Tax), and SUI (State Unemployment Tax).
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