I own a small residencial house cleaning service. at the present i am paying our helpers on a 1099 basis. What is my legal obligation. should i be going through a w2 situation or stick with the 1099
Welcome and thanks for your question!Whether you should treat the helpers as 1099 independent contractors or W2 employees depends on numerous factors, so you must look at the specific circumstances of your case. The IRS primarily looks at three areas when it performs an examination to determine proper classifcation of worker - behavioral, financial, and relationship. Behavioral essentially is how much control does the worker have over his or her job - do they have to follow your rules and take direction from you or are they pretty much on their own? Financial looks at who controls how the worker is paid - do you control payment or do they (invoicing you)?. Type of relationship is primarily concerned with how is the relationship structured - do you have a contract, is it long-term, etc.? A good general overview can be found on the IRS website here.The IRS has a comprehensive list of 20 areas it would look at to determine 1099 vs. W-2. Look at these areas here to determine how you should classify your helpers. Basically, the more control you have, the more likely it is you should treat them as a W-2 employee. I would be happy to assist you in that determination if you provided me with a little more detail.
It looks like I should be paying in a W2 form, If I want to start W2 payments from now on, Will I be in trouble with the payments that I have already made as a 1099? How can I handle switching from 1099 to W2?
Likely, you will not get in any "trouble" for the payments you have already made. If the IRS were to randomly choose you for a worker classification audit or one of the workers were to complain about the 1099 status, you would have to pay roughly a 10.68% penalty on the payments you have already made intended to represent a portion of the taxes you would have paid had they been properly classified.To switch from 1099 to W-2ou will need to explain to your staff that you will be switching them to W-2 employees. You will want to have each of them fill out a W-4 to tell you how much taxes they want withheld from their paychecks. If you have not done so already, you will need to update your registration with the IRS to reflect that you will have payroll and you will need to file quarterly 941 forms and an annual 940 to report the wages paid and taxes collected. You will also need to make sure you are registered with the South Carolina Department of Revenue for withholding tax.An excellent resource for your responsibilities as a tax-wise is IRS Publication 15, also known as Circular E.