Client took taxes out on their own

[mikekelley]

I've never had this one happen before- I did some work for a bigger company and they said that they had to put me on their temporary payroll to pay me. Okay, whatever. I got a deposit before the shoot and was supposed to get the other half after the shoot (300 before, 300 after).

I just "received" the second 300, but they went ahead and deducted the usual state and federal taxes, like they'd do if you were a part-time employee or something.

What's my play in this situation? As it stands the taxes were about 1/6th of the total pay. I usually file my own taxes so I was just expecting the remaining $300 in a check, but when it came up as 2xx.xx I was like wtf?

Should I just forget this and not file it when I do my taxes, or seek the full amount?

[aroundlsu]

I've never had this one happen before- I did some work for a bigger company and they said that they had to put me on their temporary payroll to pay me. Okay, whatever. I got a deposit before the shoot and was supposed to get the other half after the shoot (300 before, 300 after).

I just "received" the second 300, but they went ahead and deducted the usual state and federal taxes, like they'd do if you were a part-time employee or something.

What's my play in this situation? As it stands the taxes were about 1/6th of the total pay. I usually file my own taxes so I was just expecting the remaining $300 in a check, but when it came up as 2xx.xx I was like wtf?

Should I just forget this and not file it when I do my taxes, or seek the full amount?

I have done lots of film work for some of the largest companies in the country. Sometimes it can be a hassle getting paid just because the company is so big it is difficult getting the invoice to the right people, but I have never heard of having to be put on a temporary payroll. I would have said no thanks, especially for a $600 gig.

[Kyle is raaddd]

Hmm,.. In for more responses.
I'm not sure what I would do.

[wyofizz]

Sounds strange to me. You should have been treated as a sub contractor.
I find it hard to believe that they treat all sub contractors that way.
ie.. Plumbers, electricians etc.
Dave

[T.D.]

I'm no attorney and I'm not familiar with New Zealand laws at all, but it seems to me that once you agreed to become a temporary employee you automatically subjected yourself to the standard payroll taxes and deductions as any employee would.

As wyofizz said, a better arrangement would have been for a personal services contract of some sort rather than becoming an employee.

[mikekelley]

Ahh! Thanks guys. I am not in New Zealand currently - I should change that - but at home for the season in the good ol' US.

wyo, I did think that I should have been treated as a subcontractor. I think you are right that it may have been better to not agree to the temp employee thing, but I'm not sure how they would have taken to that.

Any ideas what I should do re: filing taxes?

[The Mack]

contact a lawyer.

[Tigershark]

weird but I imagine at the end of the year when your receive a 1099 from them it should show that they took the taxes out. you might get a W2 instead, either way that is very weird. just contact their accounting department and ask them how they handle reporting it. I don't think you need to contact an attorney just ask the company. At the end of the year you should not have any problems

[PhotoPrincess]

I would think that you should expect to get a W-2 at the first of next year, which you would give to your tax preparer (if you use one). They will know how to handle it from there. All in all, if the taxes were withheld, you would not have to pay that portion that you would otherwise owe as a subcontractor. I hope this makes sense ;)

[egordon99]

You're actually better off this way, assuming they give you a W2 at the end of the year. The employer paid 1/2 of the "employment taxes" for you, whereas had you been an independent contractor (1099), you'd be responsible for all of the employment taxes (15%)

So the company saved you $23.50 :)

[Karl Johnston]

Were you on contract or just hired?

I've never heard of that, either...but I've also never worked on contract, or sub-contract, before.

Though, not that it's a bad thing...paying those dues is a good thing. Worst case scenario and you weren't supposed to be taxed..you likely get 23.50 coming your way from good ol uncle sam in February of next year

[mikekelley]

thanks guys- i dont think i'm going to worry about it.

[_aravena]

Well, you did agree to be a temp which is why it happen. You'll still need to claim it on taxes, like you would at any job, but...man, that sucks because it does get more confusing. now you'll probably have to wait for a W2 from them if they actually put you on payroll and what not.

If ya need, go to a lawyer for free consultation. Some are generally nice enough to tell you what's on the up and up if it's simple enough for find a tax office.

[bwolford]

And if you are work for hire or employed, copyright ownership could be theirs and not yours. Lawyer up.

[snyderman]

Maybe you should have sent them an invoice? And yes, I'm not getting their point of view either. You're not an employee of the company and therefore shouldn't be subject to payroll tax.

An invoice would have been and exact billed amt ($600) for a rendered service. Either way, it was a variable expense for the company and shouldn't have been treated as an employee/employer relationship.

dave

[Sledhed]

They should have asked for your SSN so they could send you a 1099 at the end of the year and you report it on your taxes. That's what all of the companies I shoot for do.

[LBaldwin]

Employee? Sombody in their HR department is having kittens.. and the payrool department head is an idiot.

Sledhed is correct on the 1099. Your contract and invoice should state the payment process accordingly. Ask if they put the gardners and plumbers on payroll too.

Weird.

[thebishopp]

And if you are work for hire or employed, copyright ownership could be theirs and not yours. Lawyer up.

This would be my concern. In the absence of a contract with specific usage rights agreements they may claim that you were an "employee" which would be evidenced by the fact they put you on their payroll. As such they could claim that all photos done while an "employee" and "on the clock" belong to them.

If you have a written agreement with them that stipulates your copyright and their usage rights then I wouldn't worry about it as they have to send you a W-2 at the end of the year (it's the law). Easy enough to include when you file your taxes.

I work as a private contractor most of the year but I do work for a company which hires me as an employee for several months out of the year. When I do taxes I just input their info from the W-2 and my 1099s.

If anything they should have requested (or you could of supplied) them with a W9.

[jaykilgore]

In the US, any payout over 600.00 warrants a 1099.

[P51Mstg]

SledHead is right on the taxes.... If you want to protest it, sign up for unemployment on their nickle since you are no longer and employee (and I was a practicing lawyer for 17 years)...........

Mark H

[rx7speed]

lol p51mstg that's just harsh.

[P51Mstg]

Thinking outside the box like that let me retire a bit early so I could hang out here........

Mark H

[F4 Cyborg]

Since they have let you go! Take your Canon in there and go postal on them, shooting everyone in site!!! Reload and keep firing!!! :twisted:

[FlyingPhotog]

Did they have you fill out any employment paperwork? I-9, etc?

[FlyingPhotog]

In the US, any payout over 600.00 warrants a 1099.

As a minimum...

They can however send a 1099 for any amount. I've received them in the past for as little as $100.

[CosmoKid]

The company brought him on as a W2 hourly employee. Technically, there is no invoice. In reality, they probably listed the OPs services as the agreed fee and backed into a number of hours to get his "salary".

You will receive a W2 at the end of the year with your annual earnings from the company. Depending on what you claim for the rest of the year, you may have to either pay additional taxes on what you made, or you will get money back...it all depends on the tax bracket you fall in to at year's end.

[sierra_nova]

Have you contacted them? ASKED them why they did this? Chances are, it was just a mistake.

[F4 Cyborg]

The more I thought of this the more I would have had to call them. By them taking the taxes out, it would have negated my tax advantage. My travel expenses... an so on.
That's the reason I work for my self (even thou I work for a corp). Contracted. I want the tax advantage. For them it's a write off either way. They would have paid me by my terms or found someone else to do the work.

[Brian Austin]

The more I thought of this the more I would have had to call them. By them taking the taxes out, it would have negated my tax advantage. My travel expenses... an so on.
That's the reason I work for my self (even thou I work for a corp). Contracted. I want the tax advantage. For them it's a write off either way. They would have paid me by my terms or found someone else to do the work.

There is no reason why expenses still can't be written off. Employees can take deductions for legitimate business expenses as much as contractor/self-employed/businesses.

And if expensese weren't specifically itemized for the job by the company, there are no tax advantages for the hiring company, as noted earlier by the fact that have the FICA was picked up by the company. Only one of the two (company or employee) can claim the same expenses. If he never submitted them, they are his for later, including mileage.

The only advantage to the company that I can see is the copyright issue. Otherwise it favors the "employee" as far as I can see, especially if he does more work for them later.

[F4 Cyborg]

Yes I know expenses can still be deducted. Now they are deducted from a lesser amount as they have already withheld taxes.
My Bookie er Book Keeper would have look at me and shook her head.
If the only way they can pay out as if they put them on the payroll. Well that's not the type of client I work for.

Being one's own employer is the reason for all the headaches of the start up cost's, business licenses ...... to give us the tax advantage not them. They get a tax write off either way..

[Brian Austin]

Yes I know expenses can still be deducted. Now they are deducted from a lesser amount as they have already withheld taxes.

I don't get that. What do expenses have to do with the taxes there?

My Bookie er Book Keeper would have look at me and shook her head.
If the only way they can pay out as if they put them on the payroll. Well that's not the type of client I work for.

Being one's own employer is the reason for all the headaches of the start up cost's, business licenses ...... to give us the tax advantage not them. They get a tax write off either way..

I guess you lost me here.

There are no tax advantages to working for yourself, aside from being able to write off some business equipment that may be used for personal use as well. Mileage, equipment, travel expenses, etc., are all deductions an employee can use as well IF the company doesn't reimburse the employee. If the company reimburses, the company can write it off instead.

But it's rarely for the full amount. It's either depreciated (for capital expenses) or a percentage (like some travel and business lunches, etc.). And the additional taxes you'll end up paying in self-employment will negate even most of THAT advantage. Plus the headaches of quarterly estimated taxes, sales tax, and other stuff you have to keep track of depending on your business type and location.

No one starts a business for "tax advantages". There aren't any. I can make $100,000/year as an employee and keep more of it in my pocket than I can as self-employed.

[F4 Cyborg]

Here in Tx LLC is a great way to be.

[Brian Austin]

Here in Tx LLC is a great way to be.

LLC's are a little different. You've set up a corporation but have an income "flow through" to your personal taxes. From a tax perspective, it's handled differently (although not a lot) than a simple self-employed contractor.

Any corp-to-corp interaction HAS to be through a 1099. The other company couldn't hire your LLC as an employee. If the OP had a corporation (of any type) set up, the employment avenue wouldn't have been an option.

[andrewdayphoto]

contact a lawyer.

...or an accountant.

[Tigershark]

If I work as an employee for company A and drive to work every day I can not deduct my mileage as an employee. If I am a self employed contractor of company A doing a consulting job my mileage is deductible.

[Lowner]

Here in the UK some building companies prefer to treat casual labour - plumbers, plasterers and the like, this way. Then they know that the taxman cannot pass any blame in their direction (they deduct the tax and submit it to the taxman on your behalf, isnt that kind of them?).

I'm only aware of how it works in the UK, where I am a self-employed sailing instructor. Like the others, I would assume when you send in your next annual self-employed tax return, you should still be able to lay off allowable expenses incurred on the job against tax and will need to pay less tax than would otherwise be due because an amount has already been paid by the company. You will need that notification of tax paid by the company however, otherwise you have no way of proving anything.

[kenwood33]

Sounds like their system is messed up

[F4 Cyborg]

If I work as an employee for company A and drive to work every day I can not deduct my mileage as an employee. If I am a self employed contractor of company A doing a consulting job my mileage is deductible.
(mileage, wear and tear), insurance, repair's, payment's - yep I know If you use it for personal business, for some they can not deduct that in all the above mentioned. (you go somewhere that's not for business?) Really.
Me if I out and about, I'm looking for my next venue for a photo shoot. Now if I happen to have dinner (no wait, that's a business dinner), O.K. if I buy something (oop's that's to photo and update the portfolio)...
To far fetched? Emm could be. Find a good accountant < there deductible. A good Lawyer < also deductible. Both of which are in your state of operation, let them guide you as to what is or is not deductible.
Lastly, If you buy so much as a breath of air, GET A RECEIPT!!
Better yet don't carry cash. Carry a business credit card or and a debit card. Well maybe carry a bit of cash for penny anny purchases. <GET A RECEIPT!!!

[FlyingPhotog]

(mileage, wear and tear), insurance, repair's, payment's - yep I know If you use it for personal business, for some they can not deduct that in all the above mentioned. (you go somewhere that's not for business?) Really.
Me if I out and about, I'm looking for my next venue for a photo shoot. Now if I happen to have dinner (no wait, that's a business dinner), O.K. if I buy something (oop's that's to photo and update the portfolio)...
To far fetched? Emm could be. Find a good accountant < there deductible. A good Lawyer < also deductible. Both of which are in your state of operation, let them guide you as to what is or is not deductible.
Lastly, If you buy so much as a breath of air, GET A RECEIPT!!
Better yet don't carry cash. Carry a business credit card or and a debit card. Well maybe carry a bit of cash for penny anny purchases. <GET A RECEIPT!!!

I used to have an accountant who always told me all of the above...

He also used to constantly remind me to record all my mileage regardless of what I was doing. Better to have it documented and can't use it than to need it and can't back it up.

He used to keep a large manilla envelope full of "mileage logs" which he'd dump out on his desk saying "I can only cover you for the first 100,000 miles a year. After that, you're on your own..." :lol:

I wonder when he's elegible for parole? :shock: :cool:

[F4 Cyborg]

Some chose better than others, some chose another game, when it all comes down to the Brass Tax, We all Pay The Same !!


as little as we can in as few times as we can.

[Brian Austin]

If I work as an employee for company A and drive to work every day I can not deduct my mileage as an employee. If I am a self employed contractor of company A doing a consulting job my mileage is deductible.

Bad analogy, honestly.

Your "job" doesn't start until you leave your primary business location. If that's your home, then it starts when you leave the house for the job. But if you have an office 5 miles away, you don't get mileage to go back and forth to the office. Yet you're still a "self-employed" contractor.

And if that's the best you can do, it still doesn't make up the 7.5% on the FICA plus health care benefits, etc., a company is probably giving you. That's not an "advantage" unless you're putting on thousands of miles...and even then it's costing you a LOT in wear/tear and you're not really seeing that money back unless you're charging for travel...and THEN you're not really "deducting" mileage but associating it as an operational expense against the job!

I still haven't seen any evidence of a "tax advantage" of 1099 vs W-2.

In all honesty, the company doesn't really sound like they are playing by any recognized rules here. Adding someone to the payroll for a single job is going to be a big red flag for any auditor. And because it's "temporary" or associated with work-for-hire (which is what this sounds like more than anything), it can still have mileage and other operational expenses applied against the job to lower the net income (IE "writing it off").

[FlyingPhotog]

Bad analogy, honestly.

Your "job" doesn't start until you leave your primary business location. If that's your home, then it starts when you leave the house for the job. But if you have an office 5 miles away, you don't get mileage to go back and forth to the office. Yet you're still a "self-employed" contractor.

And if that's the best you can do, it still doesn't make up the 7.5% on the FICA plus health care benefits, etc., a company is probably giving you. That's not an "advantage" unless you're putting on thousands of miles...and even then it's costing you a LOT in wear/tear and you're not really seeing that money back unless you're charging for travel...and THEN you're not really "deducting" mileage but associating it as an operational expense against the job!

I still haven't seen any evidence of a "tax advantage" of 1099 vs W-2.

In all honesty, the company doesn't really sound like they are playing by any recognized rules here. Adding someone to the payroll for a single job is going to be a big red flag for any auditor. And because it's "temporary" or associated with work-for-hire (which is what this sounds like more than anything), it can still have mileage and other operational expenses applied against the job to lower the net income (IE "writing it off").

There is certainly an advantage to 1099 income as it relates to "write offs."

When I was predominently 1099, I was able to deduct a much larger percentage of things like cable, phone, electricity, etc (and home office expenses) than I've been able to as a mostly W2 paid "employee" of my clients.

FWIW, the US IRS has ruled that if you are told when to come and go and if your employer supplies your tools then you can (and should) be classified as an employee (and have your SS Tax paid accordingly...)

If you come and go freely and bring your own tools/materials to the job, then you are a "contractor."

[NZDoug]

phone IRD NZ (Internal Revenue Dept.) and ask for advice.

[sfgp]

I would suggest sending an invoice (if you haven't already done so) and
showing credit for what they have already paid and a balance due (which
would be the taxes they withheld) and give them something like net 30.

Just my $00.02 as a place to start.

My invoices go out asap/next day. This also forstalls any try at the client
trying to claim "Work for Hire" or any other type of BS.

Looks better in front of the small claims judge also, most judges do not
like to see the big guy taking advantage of the small guy, and it costs the
big business way more than your claim to go to small claims (they settle).

[Brian Austin]

There is certainly an advantage to 1099 income as it relates to "write offs."

When I was predominently 1099, I was able to deduct a much larger percentage of things like cable, phone, electricity, etc (and home office expenses) than I've been able to as a mostly W2 paid "employee" of my clients.

Sigh. I'd really like it if someone actually read what I'm typing.

There is NO tax advantage that results in a net income INCREASE for the same revenue generated in a 1099 vs a W-2.

As a W-2 employee, I wrote off similar percentage of things on my taxes since I worked from home quite a bit. Regardless, the actual ADVANTAGE of the 6.2% FICA contribution (updated for 2009) by the employer isn't recovered by a 1099 contractor.

Think about it in pure dollars.

On a $100,000 income, with today's requirements (2009 SS Fact Sheet (http://www.ssa.gov/pubs/10003.html)), as a W-2 employee, you contribute 6.2% of your income to SSA. That's $6,200 of your income that never makes it to your pocket. As a 1099 contractor, you have an ADDITIONAL $6,200 contribution to make on that same $100,000 income.

Let's say you drive 10,000 miles for your job. As a W-2 employee, your company reimburses you $0.40/mile. As a 1099 contractor, you get no reimbursement. The IRS allows $0.55/mile as of the latest update (http://www.irs.gov/formspubs/article/0,,id=178004,00.html)I can find. As an employee, you still get to lower your net income by $1,500. As a contractor, you get to lower your net income by $5,500. FICA contribution as a W-2 is $6,107. Contribution as a 1099 is $11,718.

You'd have more operational costs but the money you're spending as a contractor isn't going to be coming BACK to you in a tax refund. It's simply lowering your net income. You still need to pay 2X the rate on SS that an employee pays.

There is no tax advantage. And, yes, I've done this both ways as an IT consultant for years.

FWIW, the US IRS has ruled that if you are told when to come and go and if your employer supplies your tools then you can (and should) be classified as an employee (and have your SS Tax paid accordingly...)

If you come and go freely and bring your own tools/materials to the job, then you are a "contractor."

Actually, there is a little more than that regarding the decision on contractor vs employee. I can come and go freely and use my own tools for my current job but I'm an employee, not a contractor. It also has to do with the relationship and length of time of that relationship. Read up on it here (http://www.irs.gov/businesses/small/article/0,,id=99921,00.html).