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1099 oops.. Should be W-2? Tennessee

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  • 1099 oops.. Should be W-2? Tennessee

    I own a small construction business. We subcontract. Now, usually we do small jobs and only hire a guy or two for a couple days at about $100 a day (these men are usually out of work and supply their own tools, work when they can, etc.) and 1099 that. But, we got a job that lasted longer than expected. Due to changes with blueprints, etc. Anyway, we have had 2 guys on payroll since September and I never took taxes out. I thought I would 1099 them, but I looked at the checklist of 20 questions and in no way do they qualify.

    Examples:
    Job is in N.C. we pay all out of town costs.
    They use our tools at the jobsite.
    We set the hours of work.

    My question is.. now what? How do I fix this? I want to file the proper forms and do the right thing. I just don't know what to do. I have no W-4s on file. Is there a way to fix this without penalties or am I just screwed?

    Any help is appreciated.
    Thank you, Carrie

  • #2
    I cannot help on what you should/could do at this point in time.

    I would probably send out the 1099 to the person, the IRS and the state and hope that there is not a problem.

    If the folks are currently working, convert them to employees. They will have a fit when they see their paycheck go down and you will have to explain that the 15+% self-employment tax they had to pay while on 1099 is now split between the two of you and their share taken out of the pay now rather than being paid at tax filing time.

    Make plans to change how you operate. In the future, HIRE someone as an employee, even if they are only going to work for an hour. You could do that through a staffing agency. If YOU identify the worker (rather than relying on the staffing company to do the recruiting), you should be able to get a break on the rates charged. They will then take care of the WC premiums, FICA, FUTA, SUTA, federal and state income tax withholdings.
    Senior Professional in Human Resources and Certified Staffing Professional with over 30 years experience. Any advice provided is based upon experience and education, but does not constitute legal advice.

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    • #3
      Thank you for replying.

      I think I will go ahead with the 1099s and make them employees as soon as they get back in town. I could kick myself for getting into this mess.

      Also, the staffing idea is a good one. I can keep just a couple guys I trust on my payroll and then when extras are needed I just go through them and it all gets taken care of.

      Again, Thank you,
      Carrie

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      • #4
        You screwed up, plain and simple.

        They can fill out an SS-8 form and you will still be liable for any taxes as well as penalties for misclassification and failure to withhold as well as interest on said unpaid taxes, and they will get a refund of what they had to pay out for income tax this year.

        Not to mention a 3949-A form. That's just a nasty one to deal with.

        Best thing to do is to have a W-2 for anyone that works for you at all, even if it is for just one or two days.

        You may also be in violation of non-payment of unemployment insurance.
        Last edited by Skipray; 03-20-2008, 06:47 PM.

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        • #5
          September last year is not good but not horrible. The government has heard worse. My inclination would be to fix it now. You might get penalized but the penalty is much worse if the government has to hunt you down. If you have not yet handed out the 1099s (due end of January), then just hand out the correct W2s for 2007, then you need to fix your 2007 W2, 4th quarter 941 and 4th quarter SUI reports. The exact nature of the fix depends on what you have done so far. I am going to suggest that if you need help on fixing your 2007 payroll returns, that you repost that particular question on the http://bb.payroll-taxes.com/ website. That sort of question is quite common there.

          Past that, I agree with the other answers. If someone fails the 20 question test, you legally have to treat them like an employee for all purposes. Get an I-9, get a W-4 and the whole nine yards, even if they are very short term. At least some of these folks willl file UI claims, the so called independant contractor status will get put into play anyhow, and like I said, the government hurts employers a lot worse if they have to hunt them down.
          "Reality is that which, when you stop believing in it, doesn't go away".
          Philip K. **** (1928-1982)

          Comment

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