One potential Coeur d’Alene business tax reduction strategy is to hire independent contractors instead of employees.
If a worker’s classification fits within the tax law, it’s a legitimate strategy that can save you thousands of dollars.
- But sometimes the classification isn’t clear-cut.
You may think you have the independent contractor classification correct, but when the IRS does the audit, you could learn the IRS considers those contactors W-2 employees.
- This can cost you a huge sum of money in back payroll taxes, fines, fees, and penalties.
You Will Owe the Entire 15.3%
The law requires that you withhold taxes on the wages you pay to your employees.
- If you don’t, you are liable for 100% of the withholdings of FICA (i.e., Social Security and Medicare) taxes that you neglected to remit to the IRS.
- Thus, if the IRS reclassifies your independent contractors as W-2 employees, you are on the hook for the taxes you should have taken from the paychecks.
A Way Around This Issue
If you can show the Coeur d’Alene 1099-worker paid the taxes, then you aren’t liable for them. This rule prevents the taxes from being paid twice. For this favorable treatment, which is on a worker-by-worker basis, you need the worker to sign IRS Form 4669, Statement of Payments Received.