I was recently looking around my house and noticed that we have bags for everything: brown paper grocery bags, plastic grocery bags, lunch bags, garbage bags, bread bags, trash bags, wine tote bags, boat tote-bags, book bags, laundry bags, tea bags, and regular bags (aka purses). We’re drowning in a sea of bags.
So, what do all these bags have to do with Independent Contractor compliance? If you’ve joined the gig-economy and have begun working as a freelancer, also known as a non-agency contractor, you may not realize that you can be personally liable for unpaid federal and state taxes if you are found to be improperly classified as an independent contractor (IC). IC misclassification is not just a client risk, it is very much a freelancer risk, as well. Learn how to protect yourself before you’re the one owing the federal and state government bags of money.
What happens if an employer improperly classifies a worker as an independent contractor and doesn't withhold income taxes or FICA? Does that mean the contractor is not liable for the taxes? Seidel Schroeder, CPA and Business Advisors, reports one Florida non-agency contractor found out the hard way - that the answer is "no." (Article link)
Consider the following relative to your own business: If your client classifies their engagement with you as an IC (i.e. engages you as a 1099 contractor) and the IRS or DOL reclassifies you as a W-2 employee of the client, then you are liable for the taxes as an employee and to add insult to injury, you won’t be allowed to take the business tax deductions. Similarly, if your client engaged you improperly as a 1099, then they did not withhold payroll taxes, so they also are liable.
As you usher in a new year, consider a gift for yourself that you can really use. Get certified and trained as an independent contractor with IC Precheck. Ensure you and your clients are IC compliant, so you won’t be the one left holding the bag.
Making the market for Independent Contractors safe and reliable for ALL parties.