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Old 11-11-2008, 12:50 PM
 
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Can any one tell me if under the IRS rules it is possible or not that an employee works as a W2 and at the same time another worker is a 1099 (sub contractor) while doing the exact similar things with the same job description only the last person is doing their own taxes.....

As far as I understand this isn't possible. Any input is welcome.
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Old 11-11-2008, 01:04 PM
 
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Same job, same rules, same form. However, employers do "illegal" things all the time. Maybe the other person convinced them neither would ever get caught and would save them each some money.
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Old 11-11-2008, 01:08 PM
 
Location: Columbia, SC
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Quote:
Originally Posted by sweetana3 View Post
Same job, same rules, same form. However, employers do "illegal" things all the time. Maybe the other person convinced them neither would ever get caught and would save them each some money.
Yeah, it is illegal. Maybe if you made a friendly call the IRS to perform an audit, they might look into it. I think there is an IRS hotline to report fraudulent activity like this. I forget what the actual tax ruling is, but if the so-called 'subcontractor' only has one customer (in this case your employer), they will be up a creek if they get audited.
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Old 11-11-2008, 01:19 PM
 
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The reason for asking this is that I'm looking to take over a business which has 1099 and W2 who are doing the same work and IMO from what I've read this is illegal, but i don't want to go so far to report them, but I don't want to be responsible for the mistakes that are made. Should I give them a SS8 form and let the IRS decide or hire them again as W2? Since from all I have read they are just W2 employees.
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Old 11-11-2008, 05:20 PM
 
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Quote:
Originally Posted by bentlebee View Post
The reason for asking this is that I'm looking to take over a business which has 1099 and W2 who are doing the same work and IMO from what I've read this is illegal, but i don't want to go so far to report them, but I don't want to be responsible for the mistakes that are made. Should I give them a SS8 form and let the IRS decide or hire them again as W2? Since from all I have read they are just W2 employees.
Get more information from the person that's on the 1099. Perhaps he has a more flexible arrangement, works his own hours on his own equipment, is incorporated (has his own EIN) or something similar. I wouldn't necessarily say it's illegal at first glance. If the person has a questionable arrangement and wants to stay on a 1099, there are steps you could take to make him more suitable in the eyes of the IRS. The biggest thing would be to insist that he have his own EIN, which can be obtained quite easily after he registers a business.

If the person doesn't care, then I would simply treat him as an employee and file a W2.

It's definitely something to follow up on in any event!
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Old 11-11-2008, 05:27 PM
 
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Thanks. So if the person has an EIN than it is okay? So it doesn't matter that for the rest all W2 and this 1099 worker are doing the same work, don't take their own appointments and the 1099 doesn't have her own cash register?
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Old 11-11-2008, 06:03 PM
 
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Originally Posted by bentlebee View Post
Thanks. So if the person has an EIN than it is okay? So it doesn't matter that for the rest all W2 and this 1099 worker are doing the same work, don't take their own appointments and the 1099 doesn't have her own cash register?
If he has his own EIN and files taxes as a business, you should be okay.

Here are the guidelines that help you determine whether it's legal or not.

Independent Contractor (Self-Employed) or Employee?

I would try to get a contract in place that specifies the exact nature of the relationship as both parties understand it. Then, get a contract for your employee. Even if they in fact are doing the same work, get the concept in writing that you have less control over the contractor. He needs to have more freedom on paper and has to agree to that arrangement.

It would never hurt to contact a small business attorney either.
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Old 11-11-2008, 07:58 PM
 
5,092 posts, read 9,600,213 times
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Originally Posted by StoneOne View Post
If he has his own EIN and files taxes as a business, you should be okay.

Here are the guidelines that help you determine whether it's legal or not.

Independent Contractor (Self-Employed) or Employee?

I would try to get a contract in place that specifies the exact nature of the relationship as both parties understand it. Then, get a contract for your employee. Even if they in fact are doing the same work, get the concept in writing that you have less control over the contractor. He needs to have more freedom on paper and has to agree to that arrangement.

It would never hurt to contact a small business attorney either.
All in all, good advice. The key concept is who controls the Means and Methods -- not the results.

About half way down that IRS link was another link to an SS-8. That is the IRS form used to determine if someone is an IC (independent contractor -- typically 1099) or a Statutory Employee (W2).

Bentlebee -- open the SS-8 and check yourself, your IC, and your operation against the questions in that form. It is pretty obvious what the "right" answers are. You do not even need to send it in to figure out if you are in compliance.

In brief, the IC is his own boss. That is where I see most Small Businesses screw up -- they cannot tolerate the IC being their own boss, and try to screw with them like they may an employee. Maybe an ego thing? dunno.

If you really want to keep things clean, get the IC to incorporate themselves. You do not even have to send them a 1099, then. I have NEVER heard of a corporation being found to be a Statutory Employee of another business.
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Old 11-12-2008, 09:31 AM
 
25,334 posts, read 37,463,648 times
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Thanks for all of your answers. I did call the IRS this morning and they were very clear. Publication 15 on the irs.gov is what they refered to. According to what I explained to the IRS, this worker is a W2 and the IRS assured me that I won't be liable when I take over the business but the previous owners still will be liable and can get fines. That is not my reason for asking this, but I want to be safe when I buy this business.


So when a person is a 1099 the employer doesn't have to report that part of the gross revenue, but the independent worker has to report it.
On a W2 the employer has to report the gross revenue and fill out and withhold taxes?
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Old 11-12-2008, 04:05 PM
 
Location: Bradenton, Florida
27,236 posts, read 40,261,063 times
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The worker with the 1099 generally sets more of their own rules about what they're doing. In the situation you describe, it sounds like BOTH should be getting the W-2.

Social security taxes are different for both. Self-employed people are to pay their portion of Social Security taxes.
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