We all know the problem with Independent Contractors. Under current tax law, if you are paying an individual rather than a corporation, 99% of the time, they want that individual treated as an employee.
This is the sort of problem that can shut down a business. If audited, the business that broke the law becomes responsible for all of the payroll taxes that should have been withheld from the employees.
If that occurs at the federal level, assuming a 20% federal withholding tax and 15.3% in payroll taxes, that amount becomes roughly $35K in tax owed for ever $100K in Independent Contractor payments.
Of course, the Service won’t just stop at one year. They’ll open up three years. Once they add penalty and interest, that $105K in tax can easily become $140K, and that’s only on $100K in annual Independent Contractor payments.
I ran into this situation yesterday with a new client that I’ll be able to solve using the Employee Retention Credit.
We’ll amend his payroll tax returns, re-categorizing his Independent Contractors as Employees. I will gross up the payments to include Social Security and Medicare.
Once I qualify him for the credit, I’ll claim the ERC. Even after the additional payroll taxes and the failure to deposit penalties, he’ll still end up with a positive cash flow using the 70% payment on the credit.
I’m literally solving a problem that could potentially shut him down and getting him paid to do it. If you’re in a similar situation, please contact us today.
Let me leave you with this.
December’s retail sales were just reported as being down 1.9%. Restaurants, bars, and other entertainment facilities are reporting larger declines given the Omicron surge and vax card mandates. All of this is happening while inflation surges and Chicago’s ICU Capacity is again below 10%.
I’m suggesting that we be ready. Only whatever God you pray to knows what’s going to happen next.
If that means, increasing your prices, get to it. If you need to change your offerings, now is as good a time as any. If staffing changes or layoffs are necessary, the time is now.
We all need to get ahead of these things, if at all possible. The problem is that once these situations begin to hurt your bottom line, it might be too late.
We need to be ready.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, PPP Loan Forgiveness, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and i remain,
Accounting Solutions Ltd.
Note that the only professional services provide by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.