Employees and Payroll Taxes

[Andy Lai]

Do you guys have any tips on how to save on payroll taxes? Currently all the coaches are under W2. Will having them filed as 1099 help?

I'm new to all this so any advice is greatly appreciated.

[Diana Alt]

You need to be really, really careful about making sure that coaches truly meet government requirements to be considered 1099 as opposed to W-2 before paying them that way. There are specific rules about what constitutes a contractor and can therefore be paid 1099 and if the situation doesn't meet that, the person is considered an employee and must be paid W-2.

Also, any coach with a clue is going to require a higher per-class or per-week rate if they are paid by 1099 than they will if they are paid via W-2.

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[Brendan McNamar]

I know there are some people out there 1099ing coaches but the way I understand the rules if you have a set class schedule and a coach is required to teach it that alone will make that coach an employee not a sub contractor.

The way owners get in trouble is they 1099 someone who is actually an employee. That person goes to pay their taxes and gets hit for both sides of Social Security, Medicare and so on. They don't want to pay, or don't have the money, and their tax preparer or helpful relative says "If your an employee your company has to pay half." They file a complaint that you should have treated them as an employee, you get audited and hit with a big tax bill.

The only way to save on payroll taxes is have a smaller payroll. If your classes are good sized then there is nothing you can do. If you have a couple of small classes close to each other you might be able to combine them into 1 time slot. Have to weigh the pros and cons.

How you pay yourself can effect your payroll taxes. I recommend using a bookkeeper or accountant to keep you out of trouble. Depending on how your business is structured you can receive both wages for working in the business and distributions for owning the business. Distributions are not subject to employment taxes.

[Kenny Markwardt]

http://www.irs.gov/Government-Entiti...Contractors%3F

That link is a little convoluted, but I would err on the side of caution. I worked in the payroll industry for a few years, and it was fairly common for people to get popped for calling employees 1099s.

The way I operate is:
- normally scheduled classes = wages as an employee
- personal training hours = independent contractor
- specialty classes that are scheduled, coached and programmed by another coach = independent contractor

[Kyle Hougendobler]

Bumping this thread. I have set classes I teach every week that I'm responsible for coaching. I coach at least 5 classes a day and my owner has me also do laundry, answer phone calls, respond to emails, and etc. I am on a 1099 and should be a W2. How do I got about this situation? He doesn't really even pay me for the other stuff and if he does it's not enough for what I do. Please help

[Christopher Morris]

Kyle,
It sounds like you should be a W2 employee. The easiest way I ever heard it explained was that a 1099 contractor needs to bring something unique to a business. If you are doing routine work, you're an employee not a contractor.

Here is a comparison: http://payroll.intuit.com/resources/hiring/1099-or-W2 (wfs)

In Kenny's example, personal training and specialty classes require someone with a unique skill set and add something unique to the business. He could definitely make a case for these services being paid on a 1099 basis.

It's wrong to put someone on 1099 pay simply to avoid payroll taxes.

As a dentist, I've worked at offices on a 1099 basis and on a W2 basis. The office I worked at as a 1099 dentist, I was the only dentist in the office doing dental implants and wisdom teeth extractions. I owned my own equipment for placing dental implants. I added something unique to the practice. If I wasn't there, they would refer these procedures out to a specialist.

If you need to correct this with your employer, he may get hit with fines. Talk to him about it so you're on the same page and make it as easy as possible for everyone involved.

[Kyle Hougendobler]

Christopher,

Thank you for the reply. I have brought this to my owners attention multiple times but he refuses to put me on a W2. I don't know what to do.

[Brendan McNamar]

http://www.irs.gov/Businesses/Small-...ed-or-Employee

"Form SS-8

If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.

Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF)."

File the form now and by 4-15-15 when your 2014 taxes are due you should have an answer. You will be deemed an employee and the owner will have to pay his side of employment taxes which will save you about 7.5% of your 1099 income you would owe otherwise.

You will still owe the employee side so count on owing about 7.5% of your total 1099 income for Social Security, Medicare and so on. You will also owe regular income tax which can be an issue if you have another job.

I wouldn't tell your boss you filed the form. He might simply fire you. Once the IRS makes the determination he can't really take action against you because he won't be able to 1099 any one who teaches scheduled classes or he will be violating the IRS ruling on the position. That is tax evasion.

Keep excellent records of all the time you spend doing any work at the gym. He will most likely owe you back pay as well.

Understand you work for someone who is not following the rules. He is either doing it for his own selfish gains or his business is in danger of running out of money. If he has a lot of members then he is just be selfish.

[Christopher Morris]

It's not certain that he would owe back pay, unless hourly work hasn't be remunerated.

This really shouldn't cost the business any more. A 1099 contractor receives 100% of their pay, and taxes are up to them. A W-2 employee may be paid the same amount on paper, but they don't receive it all. A percentage is withheld by the employer and given to the government for taxes, social security, etc. The expense to the business should be the same.

Maybe your employer doesn't want to do the bookkeepping numbers?

It will cost him more if he is assessed a fine.

[John McPherson]

Originally Posted by Kyle Hougendobler

Christopher,

Thank you for the reply. I have brought this to my owners attention multiple times but he refuses to put me on a W2. I don't know what to do.

Kyle - Reach out to the Texas Workforce Commission Solution Office in your (http://www.twc.state.tx.us/dirs/wdas/wfc_list.pdf) (Work/Family Safe). They are responsible for helping with issues like this, you might spend a few minutes on hold but you should be able to get some direction with what to do next.