Taxpayer has a elderly home care business and files 1099's each year for workers. Taxpayer has been advised that the workers are actually employees and should be receiving W-2 and employment taxes should be paid. Taxpayer continues to pay as sub-contractors. How do other tax preparers handle? If we handle the return knowing employer has employees that she is paying as sub-contractors, are we in violation of reguations?
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You should explain to your client that they have misclassified their workers and the IRS and SSA are providing an easy way to correct this error. If they do not the IRS will make a unilateral, no discussion, change in the status of the employee back to the date of hire and demand payment of the back FICA and Medicare tax payments from the employer. And that means both the employees' share and the employer's share. On top of that there will be interest and penalties for non-payment and for the employees' share of the taxes the Employment Taxes and the Trust Fund Recovery Penalty (TFRP) will be applied.
See the following IRS article and links about this penalty.
Note that the employer or officer of the corporation may become personally liable for the taxes even if the business is a corporation.
Collect any outstanding monies this client owes you, because your client is headed for a very rough ride with the IRS and the state in which he does business.Last edited by gkaiseril; 01-26-2010, 12:45 PM. -
I don't see how you can accept that engagement now that you're aware of the situation. You would be signing an obviously inaccurate (and dare I say fraudulent) return. The client needs to step up and take responsibility for payroll & workman's comp and not take the easy way out.Sandy >^..^<Comment
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Remember that it is always the client who calls the shots as to how to treat a worker, whether as employee or otherwise. Our job is to advise, and we can not insist that he
reclassify workers. Of course we advise him of possible penalties.
Preparation of income tax returns is a whole 'nother matter, for we sign those forms and
are held accountable for due diligence.
We are not policemen. (might change that to my tagline. grin)ChEAr$,
Harlan Lunsford, EA n LAComment
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Employee vs Sub-Contractor
My thought process (and I could be totally off) was that the income and deductions for the business are correct based on how the employer handled her business for the year and I am not involved in preparing her 1099's or W-2's so was unsure how IRS would view my responsibility. I did advise client last year that she needed to treat her workers as employees rather than sub-contractors for this year, but you know how that goes with some taxpayers.....so other tax preparers would turn client away being taxpayer did not take my advice?Comment
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Yes
Peggy this client WILL DEFINITELY be MORE trouble than they are worth!Comment
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totally agree with
ChEAr$ (as usual) - however IF we were preparing 1099s and/or W2s (which is NOT the case in this thread) then YES we as preparers can be held responsible! I for one do NOT want that problem....Comment
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Employee vs Sub-Contractor
How is the IRS and SSA making it easy? Can you tell me where I can find details on the "easy" part. If client changes workers to employees for 2010 and begins to withhold taxes, will she still need to go back on previous years or just correct going forward? If I create a letter and have her sign stating she is changing for 2010, will I then be in compliance or should I still walk away?Comment
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If the IRS wants to play hard ball, they will retroactively apply the status and collect the back taxes and penalties.
Have you or the taxpayer talked to the sender of the letter as to what exactly should be done. Right now it sounds like they need to start treating them as employees and all that that entails, insurance, overtime, benefits.Comment
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And I thank you for your support! But....Originally posted by luke View Post
Sorry, luke, but even if we do prepare the 1099's, we are not responsible.
So then, even if I suspect one of my 1099 clients is not following the common law rules
re employees, I can still prepare the 1099's for him.Last edited by ChEAr$; 01-26-2010, 06:27 PM.ChEAr$,
Harlan Lunsford, EA n LAComment
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I think we all inferred from the OP that the TP got a letter from the IRS/SSA advising re the reclassification. However, you just said they had "been advised." Later you said you advised them. So the IRS/SSA is not involved at this point? It's a matter of whether you want to continue doing the return with the provisio that they change to W-2 treatment for 2009 as I understand the situation.Originally posted by peggysioux View PostComment
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Employee vs Sub-Contractor
Burke, you are correct, IRS/SSI has not notified taxpayer. I advised taxpayer that workers need to be reclassified last year, but she did not take my advise and continued to pay as sub-contractor. So my question is if I have her sign a letter stating that she will reclassify workers to employees for 2010 and that if she does not reclassify, I will be unable to handle her taxes for the 2010 tax year then am I under any non-compliance issue for filing 2009 return with 1099's?Comment
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Well, I would have to think about that a bit. Since she disregarded your advice a year ago, that puts you into a quandary about 2009. Others have voiced the opinion that you are not under any non-compliance issue for 2009 just by doing the tax return. But as long as you do it, she probably won't change unless something happens on the IRS end. Which may be never. You could file it with the disclosure letter in my opinion.Last edited by Burke; 01-27-2010, 11:46 AM.Comment
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File what with a disclosure letter?Originally posted by Burke View PostChEAr$,
Harlan Lunsford, EA n LAComment
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