Day Labor

[geekgirldany]

I have two landscapers that are paying Day Labors. You know the ones they dont' get any information from and only pay cash. How do some of you handle this? One client is paying out alot in day labor. I just wonder if the IRS will start to question this. Surely they know this is happening.

Thank you.

[taxmandan]

Day laborers

The IRS will certainly disallow any and all expense deductions for wages or labor on the business' return. The business owner will eventually get nailed by the taxing authorities when one of the "day laborers" goes down to the Employment office and files for unemployment. That person will insist that they were an employee of this business and will sign any affidavit put in front of them stating that they worked for said business.

The state WILL contact him and determine that unemployment taxes should have been paid as well as workers' comp insurance coverage. And then let the IRS and state income tax agency know about it. Your clients are digging a deep, deep hole for themselves.

How do I deal with it? I explain to the the client(s) that they do it right, i.e.: put the employees on payroll, or find someone else to do their taxes. It gets down to how professional you are going to be in your business.

[Snaggletooth]

No Deduction

I guess I can get unpopular with some of these folks, but I tell them: "No 1099 means No deduction."

A client who insists on taking a deduction for this is going down in flames some day, and he can take you with him if you just smile and waltz down this road with him. I will often have people who say they don't pay any one person as much as $600, and I will be agreeable to this so long as the circumstances would allow this to be true.

Example: A farmer who pays out $1000-$1500 but not more than $600 to one person. That is believable at least to the benefit of a doubt. Another case would be a contractor who issues 1099s for $100,000 to various people, but then wants to deduct another $3000 for a group of people not one of which drew more than $600. I would go along with this too.

But a guy like you're talking about? No way. When I have a client like that, I simply tell him "no deduction" and in effect HE is paying the tax for those recipients who don't want to.

[JG EA]

Casual Labor

In addition to the above comments. Some notes:

SUTA authorities are happy if you add casual labor to your other wages and pay taxes to them. Then you just have the other issues:

Independent contractor or self employed issue. So make them fill out a W-9. You can ask them about their employment status and make notes on the W-9 that you keep in your records what they said.

Worker's compensation issue. If they don't have it then they have to be included under your policy.

I'm saying your, but I know its your client we are talking about.

[Bees Knees]

Lambert’s Nursery and Landscaping, Inc. v. U.S. (5th Cir. 1990) is a court case you might want to check out. It deals with a Section 530 issue where a 1974 IRS audit determined that Lambert’s landscape workers were indeed independent contractors. The court case deals with whether Lambert could then treat janitors as independent contractors under Section 530 of the 1978 Tax Reform Act, since an IRS audit already allowed the landscapers to be treated as independent contractors.

If your landscape business client is allowed to treat the day labor workers as independent contractors because the work they perform and the manner they perform it in is similar to the Lambert case, then all you have to worry about is insisting your client issue 1099-MISC consistently to all workers who make over $600. That shouldn’t be too hard. Your client should insist all day workers fill out a W-9 before they get paid. No W-9, No pay. Period.

[geekgirldany]

Thank you all for responding. I really do appreciate it.

I've told them what they should do as you all have recommended. Have them fill out a W-9, I tell them to get a letter signed stating they are a subcontractor, and do 1099s. They said they don't pickup the same ones everyday. I'll tell them that they will have to get them to do this. Tell them (as you said) no W-9 no pay. Atleast a 1099 has been filed.

There is a place here where alot of illegal immigrants gather to get work. This is where alot of the local businesses pick them up.

Today one was asking me what they should do. I said either take the chance of using day labor or get someone that will give them their SS/ITIN numbers on a W-9. I'm going to read on the Lambert’s Nursery and Landscaping, Inc.more. My mentor, I guess you could say, that I learned about taxes from was of the "don't ask" type of mind. Its all on the taxpayer on the end. But your right Snaggle I know they would not hesitate to take me down with them. As one doctor said to me once.. "the pathway to hell is paved with gold".

I know when I tell them if they were ever audited the deduction would be disallowed.. then they should get them to sign W-9s. Atleast I think I know they will.



Thank you all again for the posts.

[BOB W]

google search...casual labor..

Income and unemployment taxes. You're not required to withhold federal and most state income taxes or to pay federal (FUTA) and state unemployment taxes with respect to your cash payments to an employee for casual labor unless

the cash payment is $50 or more in a calendar quarter, and
the employee was engaged in casual labor for some portion of 24 different days during that quarter or during the preceding calendar quarter.

Could someone please explain the above. Does it this mean that someone can be paid $500 as long as they did not work more than 23 days, thus making him "casual labor", not subject to payroll taxes.

[Bees Knees]

the cash payment is $50 or more in a calendar quarter, and
the employee was engaged in casual labor for some portion of 24 different days during that quarter or during the preceding calendar quarter.

Those must be state rules. For purposes of being subject to FUTA, the following is from the 940 instructions:

Except as noted below, you must file Form 940 if Test 1
or Test 2 applies.

Test 1. You paid wages of $1,500 or more in any
calendar quarter in 2003 or 2004.

Test 2. You had one or more employees for at least
some part of a day in any 20 or more different weeks in
2003 or 20 or more different weeks in 2004.

Count all regular, temporary, and part-time employees.
A partnership should not count its partners. If a business
changes hands during the year, each employer who
meets Test 1 or 2 must file. For purposes of Test 1 or
Test 2 only, do not include wages paid by the prior (or
subsequent) employer. But see Successor employer on
page 5.

There is a place here where alot of illegal immigrants gather to get work. This is where alot of the local businesses pick them up.

Now you are talking I-9 requirements not being met. Print out this form

http://uscis.gov/graphics/formsfee/forms/files/i-9.pdf

and say each day labor person needs to fill one of these out before they can do any work.

[taxmandan]

State laws

You need to check your state laws, Oregon has much more stringent laws on independent contractors than federal law, and I have to explain that all the time to these small businesses. For instance, Oregon does not recognize the "industry practice" like the IRS. A business must meet ALL eight of the state standards to be considered an independent, not just some or most. And if they don't have their own contractor's license and bond, they are not independent.

This whole area is a hot button issue for the taxing authorities, they know it is abused and are always looking for this type of "casual labor" cause they smell lots of money in back taxes, interest and penalties.

geekgirldany said:
<There is a place here where alot of illegal immigrants gather to get work. This is where alot of the local businesses pick them up.

Today one was asking me what they should do.>

They should stop hiring illegals, they are breaking the law if they hire someone who is illegally in this country.

[S T]

More Day Laborers

California the same, they do not recognize Day Laborers as independent contractors, they are employees.

I have had several contractors in the area lose an EDD audit as well as having to include the wages in Work Comp, when they complete their annual audit.

It seems most of the day laborers also do not have valid SSN#'s.

Sandy

[geekgirldany]

Thank you all for your posts. Like I said previously I am going to tell the customer about this. It will be on them to get this information.

[BOB W]

Casual Labor&gt; IRS Quote

"Businesses with Employees - Casual Labor and Seasonal Help

Casual labor is a term derived from some state employment agencies, referring to any type of work that does not promote or advance the business of the employer. Casual labor has no federal employment tax significance. Seasonal help is what's often needed for sporting events, holidays, and commercial fishing or harvest seasons. Whether you are getting paid or paying someone else, questions often arise over the tax treatment of payments for casual labor, temporary help, and seasonal help.

Casual or seasonal employees are subject to the same tax withholding rules that apply to other employees. For additonal information on your tax responsibility as an employer, refer to our section on businesses with employees. These rules are also explained in IRS Publication 15, Circular E, Employer's Tax Guide."

I don't know where the "Google search" got their info when I search them several days ago.

I have a client that does business on Fire Island, NY. In the summertime he will pull (willing) people off the beach and pay them a fee for loading and unloading his truck as well as other labor tasks. Hardly ever is it the same person. The $50 or $100 paid daily for several weeks during the summer is paid in cash. I've been deducting it as casual labor. How do you handle this type of labor?

[wv112]

Cash receipts would need to be dated and signed by each person receiving the cash payment.

I have posted these to "loading expense" instead of casual labor.

[jainen]

payroll taxes

Whether or not the employer does withholding on such cash payments, he still has to make the normal deposits for payroll taxes. Calling it "loading expense" or anything other than wages is plain tax evasion, and an intentional misstatement by the tax preparer.

[Bees Knees]

In my opinion, the best advise for a business that needs to pay cash for casual labor is to treat it as net employee wages, with the business owner picking up FICA by grossing up the computation.

For example: Say you have your guy who picks up people off the beach for a day to help load and unload his trucks. He gives a guy $100 for his efforts in cash. The guy has to sign his name next a receipt log book acknowledging that he got the cash in exchange for day labor. Your client never see him again.

Since the $100 is below the withholding tables for a single person claiming one exemption, no W-2 needs to be filed with the employee or the Social Security Administration.

Now your client has proof of the cash paid. He then grosses up the $100 for purposes of paying FICA (both employee and employer’s share). That comes to a gross wage of $108.28 (108.28 X 7.65% = $8.28, $108.28 minus $8.28 = $100). Now he reports that on a 941 with $108.28 gross wages and pays the IRS $16.56 in payroll taxes ($8.28 + $8.28).

You explain to your client that the $16.56 represents the cost of doing business with cash labor. The IRS is happy. Your client is happy. If you want to throw in another 87 cents for FUTA, fine. Maybe state unemployment should get something too.

But I think that might be easier on your client than giving him a lecture on all the hoops he should be jumping through to do proper payroll. Of course, this is not going to solve the illegal immigrant issue. Immigration has its own fines for messing with those people.