2 Partner P'Ship (Tutoring) each w/w-2 paying part time tutors via W-2

[AZ-Tax]

2 Partner Tutoring business Partnership each w/w-2 issued by Partnership is paying their part time tutors when needed via W-2. Since the 2 Partners are already receiving a W-2, seems it may improve the Partnerships financial position if the part time tutors were issued 1099-misc by the Partnership vs. W-2's especially if the part time tutors are already receiving a W-2 w/full benefits from their full time position. Your comments please.

[taxxcpa]

It should not be decided on what is best tax-wise. If the tutors meet the qualifications to be classified as independent contractors and if they qualify as a deductible business expense, then 1099s are appropriate. Otherwise, W-2s should be issued.

[JohnH]

Of course it is beneficial to the partnership to pay people as I/C's rather than employees- that would be true for all employers. But that isn't how the decision is made.

Neither does the fact that the instructors have full-time jobs affect the decision - lots of people work side jobs and are treated as employees. So neither is that how the decision is made.

The decision is based on the 20 common-law factors, with "direction and control" being among the top 5. Fill out an SS-8 and then decide. I'm betting once you've completed the form, you're going to throw it away and keep treating them as employees.

But the partnership should not be treating the partners as employees and issuing W-2's to the partners - they should be reporting their income from the partnership via a K-1.

[ATSMAN]

I agree with JohnH. Too many of our client's believe that the best way to pay their "employees" is cutting them a 1099-Misc instead of W2.

I had a landscaping client of mine audited 2 years back and he had to put almost 50% of his employees on W2. I tell my clients that if you have complete direction and control and they use your tools to do the job they are your employees, though part time perhaps.

[AZ-Tax]

This is why I mentioned 1099-Misc

I had a landscaping client of mine audited 2 years back and he had to put almost 50% of his employees on W2. I tell my clients that if you have complete direction and control and they use your tools to do the job they are your employees, though part time perhaps.

That is the reason I mentioned the 1099-misc. These outside Tutors have their own clients, schedule their own appts and use their own vehicle. P'ship clients pay P'ship and P'ship pays a % to outside tutors.

[JohnH]

Does the partnership simply refer the customers to the tutors, collect the fees, and pay out the percentage, or does it set up schedules, prescribe resources to be used, monitor performance, etc? Looks like you may have a gray area, but after having established a practice of paying the tutors as employees, they would be running some additional risks to switch to I/C's. I'd be reluctant to advise them to switch, unless the situation were a slam dunk. This is one of those situations in which it would be a good idea to send the SS-8 to IRS and get a determination, if you concluded that they are indeed IC's.

I would, however, be very adamant in pointing out that they should NOT be paying partners as employees & issuing them W-2 forms.

Here's a pretty good article on the I/C question from a source within that industry. It isn't from a tax authority and certainly is not a cite, but useful nevertheless to stimulate some thinking.