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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28382
Experience:  Taxes, Immigration, Labor Relations
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I own a mechanic shop and i want to subcontract pepole to work

Customer Question

i own a mechanic shop and i want to subcontract pepole to work so i dont half to pay payroll taxes wiil it work and what do i half to do and what is the stipulations behind it
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
First of all - that should not be a matter of choice - but a matter of determination...Lev :Facts that provide evidence of the degree of control and independence fall into three categories:1.Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?2.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.)3.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?Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor.So - you need to determine if the worker is your employee or a contractor.
Expert:  Lev replied 1 year ago.
If, after reviewing all circumstances, it is still unclear whether you are an employee or an independent contractor, Form SS8, 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.
Regarding financial difference...
Employee vs self-employed..
1.
The difference is that FICA taxes for employee are paid partly by an employer and partly are withheld from wages. Self-employed taxpayers pay self-employment taxes (equivalent of FICA). If you are paid $100 as an employee - without other considerations - that is equal to $107.3 of self-employment compensation.
There is no "payroll" for self-employed. The difference would be filing schedule C with your tax return and quarterly estimate tax payment - I would put as additional cost ~$200-300 per year.
2.
Please be aware that claiming deductions will be different if you are an employee (with wages reported on W2 form) or a self-employed contractor (with compensation reported on form 1099MISC).
As an employee of the company - generally, you must use Form 2106 to figure the deduction for employee business expenses and attach it to your Form 1040 . The deductible expenses are then taken on Form 1040, Schedule A, as a miscellaneous itemized deduction subject to the 2% of adjusted gross income floor.
.
Here is form 2106 - www.irs.gov/pub/irs-pdf/f2106.pdf - instructions - www.irs.gov/pub/irs-pdf/i2106.pdf
.
The self-employed person deducts all qualified business expenses without 2% limit - and only NET self-employment income will be subject of both - income and self-employment taxes.
So - if you have substantial deductions - it would be more advantageous to be paid via 1099MISC.
3.
There are some benefits available for employees - depending on your situation - there might be subsidized health insurance, paid vacation and holidays, paid sick days, various fringe benefits (educational assistance, life insurance, etc), retirement plan, stock options, etc.
When compare employee vs self-employment options - we need to evaluate these benefits.
Let me know if you need any help this matter.