Dear Tax Talk,
I presently work for two attorneys who treat me like an employee, (i.e., ask me to come to work at a certain time, monitor how my work is done, pay me sick and holiday pay). But they do not withhold taxes from my check, have no workers' compensation, and generally are getting away with murder. What can I do about this? I like the job but they have put me in a bad position.
The key here is you like your job and want to keep it.
You're not in an unusual situation. By not withholding taxes, your bosses are either trying to avoid payroll taxes or the cost of complying with tax filings. If you're the only employee they have, the cost of the payroll taxes avoided shouldn't be that much to swing a decision. I have also found that when an employer doesn't pay the taxes, they tend to compensate with a higher wage so that the employee isn't overburdened. Between workers' comp insurance (for office staff) and payroll taxes, the burden to the employer is around 10 percent of wages. Depending on your business deductions, you may end up saving taxes as an independent contractor versus being an employee.
Compliance with payroll filings and workers' compensation can be costly. If you fail to file or pay a tax when due, the penalties can be exorbitant at the federal and state level. If you have to hire a payroll service to administer even one employee, the costs can be $60 to $100 per month. If your bosses do it themselves, it takes away productive time from their business.
The IRS offers a remedy for employees who are treated as independent contractors, but if you go this route your bosses will probably not be pleased. Form SS-8 is used to inform the IRS of the disagreement in classification of the worker.
Assuming you don't want to stir up trouble for your employer, you may want to see if you can take on the responsibility of filing and paying the associated federal and state payroll taxes. You can learn about the tax filings by visiting an IRS Web page as well as looking at the Virtual Small Business Workshop tutorials. In addition to the online materials, IRS and state agencies offer live seminars for small businesses that will help you understand compliance matters. You can also buy an accounting program such as QuickBooks that has a payroll module and additional features for compliance.
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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
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