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California Tax Updates for 9/24

Post 1:

Changes are being made in how California determines whether a worker is an employee or an independent contractor. Under the CA Labor Code, effective 9/4/2020, a three-part test is required, commonly known as the ABC test, to determine the correct status of workers for purposes of following the Labor Code, the Unemployment Insurance Code and the wage orders of the Industrial Welfare Commission. The amended Labor Code also exempts certain specified occupations and business relationships from the application of the ABC test, in which case, a multifactor test previously adopted by the CA Supreme Court is applied.

Post 2:

California issues a guide that explains taxpayer options for disaster relief. The CA Dept. of Tax and Fee Administration (CDTFA) has issued a three-page brochure, “Disaster Relief Tax Guide,” that provides information on the types of free assistance available from the CDTFA to taxpayers and feepayers when disaster strikes. Other taxing agencies that provide assistance include: the Franchise Tax Board, the Employment […]

By Linkenheimer LLP|2020-09-24T21:23:31+00:00September 24th, 2020|business, ca, CA tax, california, disaster, tax planning|0 Comments

Hiring Independent Contractors? Make Sure They’re Properly Classified

As a result of the coronavirus (COVID-19) crisis, your business may be using independent contractors to keep costs low. But you should be careful that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be an expensive mistake.

The question of whether a worker is an independent contractor or an employee for federal income and employment tax purposes is a complex one. If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax. Often, a business must also provide the worker with the fringe benefits that it makes available to other employees. And there may be state tax obligations as well.

These obligations don’t apply if a worker is an independent contractor. In that case, the business simply sends the contractor a Form 1099-MISC for the year showing the amount paid (if the amount is $600 or more).

No uniform definition

Who is an “employee?” Unfortunately, there’s no uniform definition of the term.

The IRS and courts have generally ruled that individuals are employees if the organization they work for […]

By Linkenheimer LLP|2020-09-03T20:03:03+00:00April 27th, 2020|business, New Tax Laws, tax implications|0 Comments

Employee vs. Independent Contractor: How Should You Handle Worker Classification?

Many employers prefer to classify workers as independent contractors to lower costs, even if it means having less control over a worker’s day-to-day activities. But the government is on the lookout for businesses that classify workers as independent contractors simply to reduce taxes or avoid their employee benefit obligations.

Why it matters

When your business classifies a worker as an employee, you generally must withhold federal income tax and the employee’s share of Social Security and Medicare taxes from his or her wages. Your business must then pay the employer’s share of these taxes, pay federal unemployment tax, file federal payroll tax returns and follow other burdensome IRS and U.S. Department of Labor rules.

You may also have to pay state and local unemployment and workers’ compensation taxes and comply with more rules. Dealing with all this can cost a bundle each year.

On the other hand, with independent contractor status, you don’t […]

By Linkenheimer LLP|2020-09-03T20:04:04+00:00May 2nd, 2019|employer, irs, tax|0 Comments