For tax purposes, independent contractors are considered self-employed. However, these self-employed workers may be confused about whether they’re deemed full-time employees or contractors, and this distinction is crucial for tax purposes, HR, and their employers.
As a rule, independent contractors are people that provide a service in which the payer only has control over the end result. The payer has no say over what will be done or how it will be done, unlike an employer who has the legal right to control their employees’ actions and performance.
Sometimes your employees may also take on contract work on the side. If that’s the case, they can use a W-2 template (for employment income) along with Form 1040 (for independent income) to ensure they’re paying the appropriate tax rate on both forms of income.
Many businesses will hire freelancers because they’re less expensive, require less paperwork, and can easily fill short-term positions. For these reasons, employers may misclassify their employees as independent contractors, either by accident or on purpose.
Misclassification is a widespread problem that costs government agencies billions of dollars each year, but the repercussions on employers can be significant, even bankruptcy worthy.
Specifically, the company could be subject to a 1.5% penalty of the employee’s wages and up to 100% of the matching FICA taxes the employer was supposed to pay. That’s not to mention legal penalties and the blow to the companies and the CEO’s reputation.
It’s important that payroll has a grasp of who should be getting which tax documents, so both their employers and workers aren’t upsetting the IRS. After that, the HR department should:
Finally, unless your independent contractors operate a highly profitable business (in which they file quarterly), their tax filing due date, which is April 15th in most cases, stays the same.
We expect to stay safe when we visit somebody else’s property. Whether you visit their…
In the virtual age, social networking has emerged as an integral part of our lives,…
Introduction Ballroom dancing is not only about learning the steps; it is the right footwear…
When you find yourself needing a colonoscopy, the main thing that might stop you from…
Russian researchers created the nootropic peptide Semax in the 1980s, and N-Acetyl Semax Amidate is…
When it comes to event planning, the overriding objective is clear: to increase event attendance.…