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emc011075
emc011075, Tax adviser
Category: Finance
Satisfied Customers: 2306
Experience:  IRS licensed Enrolled Agent and tax instructor
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On 5/20/2016 I started training company at $8.00/hr. On June

Customer Question

On 5/20/2016 I started training for a company at $8.00/hr. On June 6th, the pay rate was increased to $10.25/hr. During this time, no taxes were removed from the pay I received at the end of the day, in the form of a written check. On June 25th, 2016, I signed and submitted a W4 form and signed a contract on July 1st, 2016. My gross pay from 5/20-6/30 was $2943.70, including overtime pay. The prior amount I had already been paid, not including mileage reimbursement, was $2623.35. My mileage reimbursement at the end of the month was $116.26. Now, my employer is trying to remove taxes from money I have already received, claiming the net pay due after taxes is $2476.06. Now my employer says I owe the company $31.03 that will be deducted from my next paycheck. The math is currently: Total Net Pay Due ($2476.06) + Mile Reimbursement ($116.26) - Total Amount Already Paid ($2623.35) = -$31.03. It was my understanding that by not signing the W4 until June 25th, that taxation would not apply until that day and moving forward. All taxes applied to money I had already received was now my responsibility. Also, that Federal Taxes owed was now the employers responsibility. I was not contractually employed or signed any paperwork during training and received written check at end of each day at hourly rate with no taxes withheld. Now they are trying to take the taxes out for money I have already received. It was also my understanding that I was to receive $436.61 ($2***-**-****.35 + 116.26) on the first of July, and that the taxes for money I had received was now my responsibility.
Submitted: 5 months ago.
Category: Finance
Customer: replied 5 months ago.
My direct question is can an employer take out taxes after they have already paid me and before I sign a W4 form or any contract agreeing to be officially hired?
Expert:  emc011075 replied 5 months ago.

Hi. My name is ***** ***** I will be happy to help you.

Yes, he can. It is not up to you or your employer to decide if you are treated as employee (taxes withheld) or independent contractor (no taxes withheld). The rules are set by the IRS. If the employer realized that you should have been treated as employee from the beginning and just trying to correct his mistake, he is allowed to do so. Your employer can ask you to refund the overpayment or just take it out of your next paycheck.

Customer: replied 5 months ago.
However, I was not hired until just yesterday. The days from May 20th to June 30th, I came in to work voluntarily to prove I can do the job so I could get offered the contract. I was not considered an employee until just yesterday. My concern is that he is taking out the taxes so he does not have to pay the federal taxes he already paid me. From May 20th to June 30th I was a self employeed worker which at that point it is my responsibility to pay the taxes on it at the end of the year with a form 1099. Correct?
Customer: replied 5 months ago.
Also this is a nonprofit organization with no professional payroll system if it helps.
Expert:  emc011075 replied 5 months ago.

If he paid you, you worked for him, hired or not. Again, it is not up to you to decide if you are contractor or employee. There are rules the employer must follow. If he classify those 6 weeks (5/20 - 6/30) as training, he pays you as employee, not as contractor. Per IRS he is not allowed to pay you as contractor for training time.

The fact that he doesn't use professional payroll system just play into his cards. He admits that he made a mistake and he was only trying to fix it.

Expert:  emc011075 replied 5 months ago.

Contractors typically do not receive training by the hiring firm. They use their own methods to accomplish the work.

Here are some rules that determine how a workers is classified:

http://legal.uncc.edu/legal-topics/contracts/contract-checklist/independent-contractor-rules-thumb

Notice the Internal Revenue Service Twenty Factor Test

Customer: replied 5 months ago.
I did not state that I was a contractor. Yes, I did get paid for the work that I did on a daily basis, but it was not required for me to be at the place of work until I signed a contract. Everything I did was voluntary so I would actually be hired. It was considered "training" for a little while only. I know this is a tricky situation and I am explaining this the best I can through messages.
Expert:  emc011075 replied 5 months ago.

If somebody pays you for a services you performed, you are contractor or employee. There's nothing in between. If you are not an employee, you are contractor. Volunteers don't get paid for work they perform. The employer must classify you somehow and he cannot classify you as volunteer. If the employer provides the tools, supplies and training, set expectations where and how the work is done, he has employees, not contractors.

Unless you are truly self-employed, it is for your own benefit to be classified as employee, not contractor. If your employers report the payment as nonemployee compensation, you will have to pay 15.3% self-employment tax (social security and Medicare tax) in addition to income tax. As employee, you only pay half of it. It is much easier and much cheaper for an employer to classify workers as contractor. Your employer must have a good reason why he classify you as employee starting May 20. Most likely after consulting a tax professional or accountant he is trying to do it right.

Expert:  emc011075 replied 5 months ago.

Do you have any questions? Is there anything else I can help you with today?

Customer: replied 5 months ago.
Hi, sorry I didnt get back with you right away, I had an emergency come up.I do have one last tax question though. I get mile reimbursement checks for running errands for the company in my own vehicle. My employer used my mile reimbursement to pay for taxes. Is he allowed to do that. I thought that mile reimbursements were not allowed to be used for tax purposes.
Expert:  emc011075 replied 5 months ago.

There are two ways to account for reimbursement: accountable plan and nonaccountable plan.

Under accountable plan you submit an expense report and the employer reimburse you only for what on your report or for what you have receipts. Under this method, the reimbursement is not included in your taxable income and you cannot deduct the expenses on your tax return.

Under nonaccountable plan, your employer pays your certain amount every week/month or lump sum and doesn't require any mileage log, expense reports or receipts. Under this method, the amount is included in your taxable income and you can deduct the actual expenses on your tax return.

If the reimbursement is included on your paycheck, you can deduct the actual expenses as employee business expenses on your tax return.

Expert:  emc011075 replied 5 months ago.

Any questions?

Customer: replied 5 months ago.
Ok, i am under the accountable plan definitely and since my employer didnt take out taxes for May or June until this month he states that I was over paid and took my mile reimbursement saying that because he overpaid me (which was because he didnt take out taxes until now) that he used my mile reimbursement. Can he use my reimbursement to cover the taxes he didnt take out of my pay?
Expert:  emc011075 replied 5 months ago.

The reimbursement is just like any compensation or payment. He can pay you the $50 reimbursement and than tell you that you owe him $50, it comes to the same thing.

When an employer overpays you (because of his or your mistake), he can use any funds due to you (wages, reimbursement, vacation pay, sick days) to apply towards the overpayment. Some employers keep it separate, some employers just take whatever they owe you. If you owe him money and he can use any means available to him to get it back.

Expert:  emc011075 replied 5 months ago.

Any other questions?

Expert:  emc011075 replied 5 months ago.

And if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. You find the rating bar on the top of the page – 5 stars. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.