What Businesses Need to do to Comply with the IRS and Do You Have a 1099 Problem?
by Di Ann Sanchez, SPHR
There has been recent focus on the question of whether contractors (1099) and/or temporaries are really employees and it is currently being audited by the Department of Labor (DOL), U.S. Equal Employment Opportunity Commission, and the Internal Revenue Service (IRS).
Today, employers in many industries have benefited from the flexibility offered by staffing firms which specialize in a wide variety of job categories, such as accountants to construction workers. The typical temporary help arrangements, where the staffing firm generally recruits, screens, interviews, tests, evaluates and assigns its W-2 employees to specific clients. The staffing firm completes the I-9 verification process, pays
the employee, withholds and remits payroll taxes and provides worker compensation insurance coverage. Sounds like the staffing firm is the employer, right? On the other hand, the staffing firm’s client generally directs and controls the temporary employee’s work, establishes the duration of the assignment, the hours of work and dress codes, monitors the temporary employee’s performance and decides when to end the temporary
employee’s assignment. Sounds like the client company is the employer, right?
Well, what has happened here is that the traditional employer functions and rights with respect to the temporary employees have been divided up between the two entities. There is a term called “co-employment” whereby the Courts have allocated liability and responsibility to both the temporary/staffing firm and the employer/client.
Most independent contractor (contingent worker, freelancer, or temporary worker, 1099) versus employee controversy arises when the worker goes to the Department of Labor (DOL) with a claim that he or she has not received minimum wage and/or overtime. These requirements apply only to employees, not independent contractors. Because these agencies share information regarding their investigations, generally EEOC and IRS also become involved.
The DOL, EEOC and IRS use different tests to determine if a worker is a Contractor or Employee and are listed on dashrconsulting.com
IRS GUIDANCE FOR 2012 –
New W2 Reporting Requirements for 2012
For wages earned during 2012, the cost of employer provided healthcare benefits will be reported on the employees W2 (box 12). At the current time, these benefits will not be taxable to the employee. Also, employers who issue fewer than 250 W2 forms, will not be required to provide this information. There are other exceptions as well. Please visit IRS.gov for more information.
The Temporary Payroll Tax Cut Continuation Act of 2011 extended to February 29, 2012
When an employee works, normally 6.2% of wages (to the 2012 limit of $110,100) are withheld and matched by the employer. However, during 2011 the employee portion was reduced to 4.2%. What happened to the 2.0%? It increased the employees take home pay, and was intended to help stimulate the economy. This 2.0% reduction has been extended until February 29, 2012. Congress will debate an additional extension.
Contract Workers must Report all Income to the IRS even if a 1099 is not received!
If you are a contract worker, you are responsible for keeping track of all your income and expenses. You must report this to the IRS. Even if you do not receive a 1099 for a job, you must still report this income. How would the IRS ever know? They can look at your bank statements.
www.dol.gov, www.irs.gov; Beware the Temporary Trap: Application of EEO Laws to Staffing Firm Employees
(12/1/2006), SHRM; Employee or contractor? Mistakes often costly. Thomas C. Greble, Esq. and Rachel L.