I hope you have managed to stay safe and well! We focus on resolving tax issues in Prince William County and throughout the lower Northern Virginia area.

Whether to pay your workers as employees or contractors, is a question we field all the time from both current and prospective accounting customers alike. Paying employees through payroll will add approximately 10% (Minimum Fringe Benefits) to the negotiated salary and/or hourly payrate. Employer FICA represents 7.65%, while FUTA, SUI (Not including Worker’s Comp- depends on the state and other parameters) accounts for the rest of the percentage. May seem like a no brainer to just make all your workers contractors, however, keep in mind that the Internal Revenue Service (IRS) penalizes businesses for not properly classifying employees.  They also have the authority to make you process back payroll for the reclassification of your workers, leading to yet more penalties. 

Also, the Qualified Business Income (QBI) deduction comes into play for high earners that have not processed any payroll for their businesses.  And will disallow the QBI deduction in some cases. You would also be assisting unsavvy workers who need to show income, but are not aware of how to navigate the murky waters of being an independent contractor and maximizing the tax benefits, while balancing against the amount of income to show for credit purposes. Payroll processing helps your business be fully compliant with federal regulations, and legitimizes your business in the eyes of business lenders (see the recent PPP program — those that had payroll records were easily able to obtain the PPP, often with the click of a few buttons from the payroll processor, while those that didn’t had more difficulty in applying)

Payroll employees are often paid less, making it more palatable to the business owner to consider paying workers as employees, and improving cash flow at the same time. While, having payroll as an option can often help your business attract the right talent, and keep those workers who leave your employ with a vendetta from attempting to achieve whistleblower status by telling regulatory bodies that they were mistreated by the policies implemented by your organization.

In the end, an independent contractor is loosely defined as: holding their services out to the public, and having autonomy in the manner and time frame in which they are expected to complete tasks. This area can get pretty “gray” if tax representatives become involved, and they’re trying to establish that unfair practices have taken place. Payroll tax resolution cases are some of the most expensive of all resolution cases of any to try and resolve.  The IRS has a special interest in not letting business out of the requirement of providing the revenue to the U.S. Treasury at the regularity that they deem proper.

If ever you’re feeling overburdened by your tax situation or you’d rather be doing something else with your time, just remember we’re here to help you with all of your tax preparation, resolution/representation needs.  Now and in the future. Don’t put off addressing your tax situation. Feel free to contact us with any questions you may have in approaching your specific tax scenario.