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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I began working for a beauty salon in February 09 and was told

Customer Question

I began working for a beauty salon in February 09 and was told I would get commission and my taxes would be paid as if I was an employee. Now I am being told that in January I will be receiving a 1099 and will have to pay my own taxes and will continue to recieve my commission. Is this legal? If I make 800 a week I will have to give them 400 plus pay my taxes. This is crazy. As a stylist you can rent a chair for around 100 per week and pay your own taxes. Is this illegal or just unethical?
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

If you are an employee - your employer should withheld FICA taxes from your wages 6.2% social security and 1.45% Medicare tax. At the same time your employer is required to pay employer's portion of FICA - 6.2% social security and 1.45% Medicare tax and FUTA and SUTA taxes (unemployment).

If you are self-employed - that would be your responsibility to pay self-employment taxes 12.4% social security and 2.9% Medicare tax. However SE taxes are applied on net income after deducting all eligible expenses.

 

So it is very important to identify your status. IRS publication 15 - http://www.irs.gov/pub/irs-pdf/p15.pdf is the main document that addresses employee status. A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done. This distinction is important because an employee and self-employed are taxed differently.

 

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories:
--- Behavioral: Who controls or has the right to control what the worker does and how the worker does his/her job?
--- Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
--- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?


If, after reviewing the three categories of evidence, it is still unclear whether you are an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding - http://www.irs.gov/pub/irs-pdf/fss8.pdf - can be filed with the IRS.

 

The form may be filed by either the business or the worker.

The IRS will review the facts and circumstances and officially determine the worker's status.
Be aware that it can take at least six months to get a determination.

 

Customer: replied 4 years ago.
It would appear they will be making me an independent contractor if the above action takes place. If this is the case, I should be able to control my own scheulde and hours?
Expert:  Lev replied 4 years ago.

You may control my own schedule and hours not because you are an independent contractor - but opposite - in determination if you are an independent contractor you should consider if you can control what will be done and how it will be done.

 

Your responsibilities and rights are determined not by your status, but by your contract with the owner of the beauty salon.

Then - your responsibilities and rights will affect the determination of your status - not other way around.

 

Your status - an employee or an independent contractor - will affect how your compensation will be taxed, but will not determine your schedule.

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