Re: tax issue -- writers working for me?

Subject: Re: tax issue -- writers working for me?
From: Elna Tymes <etymes -at- LTS -dot- COM>
Date: Sun, 28 Mar 1999 08:33:51 -0800

Andrew Plato's comments about W2 vs. 1099 are good but they miss a few salient

1. You don't need to be a "company" in order to have employees. You need to be
a business with an employer ID number with the federal government, and usually
also with the state as well. However you can be doing business as Fred Doe and
still get the requisite ID numbers. It gets sticky after that, however, because
of tax implications for you, personally.

2. The feds (in the U.S.) are the ones most interested in making sure that
payroll taxes get paid. Hence they're the ones most interested in knowing whether
people working for you are truly "independent contractors" (hence 1099's, or in
some cases company-to-company contractors) or actual employees. The rules
differentiating independent contractors and employees used to be known as The 20
Questions, but have changed in the last year or two to be somewhat broader.
There used to be a URL with those guidelines - perhaps someone here can remember
where to find it. In any case, the gist of the differentiation has to do with
how much control a person has over his/her work environment and circumstances of
doing work for pay. Very generally, the more control the person has over how and
where the agreed-upon work gets done, the more the case can be made that the
person is an independent contractor. The more a person's work looks like a
specific project with a written contract and milestones and
you-do-this-for-that-money agreements, with no additional expectations like
routine staff meetings or mentoring of other people, the more likely the person
can defend the role of independent contractor.

With either case, you as the employer have to file tax forms (in the U.S.) and
identify the recipients by social security number, which allows the IRS to follow
the trail and see if the recipient's taxes were paid. It used to be the case
that the IRS was automatically suspicious if you said you were a 1099 contractor
- this made a lot of contracting companies nervous, resulting in (at least in
Silicon Valley) a huge reluctance to deal with 1099 folks or even with small
independent companies. The IRS has changed its stance somewhat, but the
shell-shock effect remains, making it still difficult to get companies to agree
to work with you as an independent, not an employee.

3. You don't need a lawyer to draw up an agreement with the entity you're
working with. You can write a fairly clear one yourself, provided it states
*without qualification* that you are not an employee of the hiring company, that
you are responsible for all payroll taxes and other taxes associated with your
work, and that you are being hired to handle the subsequent specific set of
tasks, which you then state, along with dates, the terms of how you get paid,
etc. Having a lawyer draft such an agreement is a rather expensive form of
insurance, which in my experience isn't always - or even often - necessary.

Elna Tymes
Los Trancos Systems

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