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ex-employer wants me to bid for self-employed contract California

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  • ex-employer wants me to bid for self-employed contract California

    I was recently downsized out of a reasonably well-paid employment I had for several years.

    Now my ex-employer wants me to bid a fixed price for a contract similar services to what I did before. The work involves traveling (formerly expensed as an employee) which is to be factored into the fixed price.

    I realize the IRS will refuse to recognize my self-employment as being a sham and will hold me for both sides of FICA. Paying some FICA is not all that bad an idea as I'm approaching SS retirement age and have a spotty contribution record. I assume (?) I can deduct fares and hotel costs while toiling from my taxable income regardless of self-employed status

    But how will California and EDD regard this? Will EDD hold me or my ex-employer liable in some way based on the same argument that it is a sham and the ex-employer is thus evading taxes? Who gets in trouble over this when the facts come out (as they will for sure)?

  • #2
    I could really use some input on this.
    Ex-employer insists I must be self-employed to accept a (reasonably lucrative) fixed price offer to create and document some designs for a fee. But there is no way in tarnation that IRS is going to accept that I'm bona-fide self-employed in the circumstances.

    So what are the pitfalls to beware of and how best to handle such a situation?
    I could really use some input on this, I feel a bit lost. Equivalent of two months' salary for what is perhaps two or three weeks' work is too good for an unemployed designer to pass up.

    I know I lose unemployment benefit for the weeks I work, even when self-employed and not paid. Do I also lose it for the week (perhaps two months later) that I'm actually paid the fee (even though I don't do any work that later week, I merely receive a payment)?

    Surely I can't be the first or only person to be facing this??

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    • #3
      You seem to be asking for sure things when there are no sure things.
      - IRS and CA reserve the right to go after anyone they want. They could not care less what anyone on this website says.
      - If you pay IRS both sides of the FICA, that is one issue off the table. One of many. IRS does not have to agree with you on the deductibility of the travel expenses. Maybe they will, maybe they will not. There is no way anyone on this or any other website could give you a hard answer on this.
      - Past that, the "employer" did not pay FUTA, WC, CA-SUTA and other employer related taxes/charges. Your actions with IRS in no manner address these issues, so if you are asking does you paying self employment tax in some way immunize the employer for failing to pay employer taxes and otherwise fail to follow legal employer responsibilities, the answer is "of course not". Now will the ax fall? Who knows. Many, many employers have gotten away with these sort of actions, but at some employers have not. This is sort of like saying that you are going to speed next week, and you want someone to tell you that you not be ticketed. Sorry, but it does not work that way.

      For whatever it is worth, the employer is at greater risk then you are. If you do what you say, you are on the hook for both sides of the FICA, and maybe having all of your deductions invalidated for 1040 purposes. No one is going to put you in jail or seize your bank account. Even if the employer is going to pretend that you are an independant contractor, that means they are going to issue a 1099 to someone who was previously an employee. Otherwise known as an "audit flag". Will that certainly mean an audit? No, although it increases the chances.
      "Reality is that which, when you stop believing in it, doesn't go away".
      Philip K. **** (1928-1982)

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      • #4
        This is another case in which the devil is in the details. You state you are being asked to bid a fixed price for "a contract similar services to what I did before". This does not necessarily mean that it is a scam, in fact, it doesn't sound to me as though it is. If you are bidding and will be contracting to do specific tasks with defined products and the key to being paid is delivering the products, not working a set number of hours, I don't see a problem. This is a different relationship than you had with your former employer. The fact that the skills that you apply to complete the contract requirements are the same as you needed to perform assigned tasks as an employee is not a problem.

        Unless there is something you see that I don't, submit the bid, do the job, and make sure you pay the FICA as self-employed. As self-employed, all legitimate business expenses are tax deductible. Assuming you are currently collecting unemployment, the unemployment that you collect after this job is complete may be effected. For example, you may have to file a new claim, and like many others who have taken short term work, may get a smaller award due to the base period for the new claim falling into the time that you were drawing unemployment. -- But, you may get follow-on lucrative work under the same terms and not need UI.
        Last edited by Scott67; 01-22-2010, 07:46 PM.
        Please post questions on the forum rather than sending me a private message or email. That way others who have similar issues have access to the discussion.

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        • #5
          Thank you both for your comments. They provide useful food for thought.

          And thanks to the keepers of this forum - it is a valuable resource.

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