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Jane T (LLC)
Jane T (LLC), Attorney
Category: Business Law
Satisfied Customers: 8435
Experience:  Worked in corporation's law department; business formations, formalities, and other business matters
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I hired a friend last year to work at my business. I started

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I hired a friend last year to work at my business. I started her out paying cash, then she started to work more hours then expected. I gave her the option to let me take 15% of what I paid her (to cover my taxes) or she can accept a 1099 so I can write it off. The total pay was around $3500. She said, a 1099 would be fine because she thought she was exempt. After she filled her taxes she has to pay in $440, and is demanding that I pay it.   I realize I should have hired her as an employee, she tells me she will turn me in to the IRS if I don't pay it. I have now hired employees legit and do the proper payroll.                            I guess my question is, should I pay her that amount to avoid complications or is she 100% liable to pay her taxes even though I did not follow IRS hiring procedures? What would I face if she did turn me in?


In the U.S. the difference between employees and independent contractors (who are paid through 1099s) is that while an employer pays taxes for an employee an employer does not pay taxes for an independent contractors and independent contractors are liable to pay for all of their iincome taxes, employment taxes, etc. Whether or not an employer properly classifies a person, correctly, as an independent contractor or an employee is a matter that is not set in stone but one that is left up to a series of detrminations regarding how much control over the work and the person the employer has, the more control over how work is done, how the person works, etc. the more likely norjmally that the person will be considered an employee). This page here allows employers to determine who can be classified as an independent contractor or an employee. If an employer fails to properly classify an employee as an employee then they may be liable for employment taxes to the IRS/state (this is also discussed in the link provided above) if they did not have a reasonable basis for mistaking the person as an independent contractor.



Customer: replied 7 years ago.
In those terms, yes she should have been an employee. I was just trying to help her out. Since I made the mistake, and she already filled the 1099, would I be liable to pay those taxes for her at this point?



The information I provided allows you to work through whether your classification error was one that was "reasonably" made, which is the distinction used to see whether an employer who misclassifies an employee would be liable for their salary wages. Also, an employer can also file a form with the IRS to have the IRS determine if they need to pay for the employee taxes for someone who was misclassified (the information on the forms and process to do this are also on that link I provided).



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