JANUARY 21ST, 2009
By CPA SAM
Q. I received a letter from the IRS this morning saying that I never filed my 2006 or 2007 tax returns. I know I did not file with IRS or my state. What do I do? My employer never sent me a W-2 to file with.
A. You have two very serious problems here. You need to get to a CPA or other tax preparer as quickly as possible to take care of them. First, your employer(s) of record for the previous year is/are required t0 Read more »
SEPTEMBER 3RD, 2008
By CPA SAM
Q. I am currently applying for a loan and need copies of my paystubs. Where can I get those? I checked online but can’t find them.
A. When I did support for PaycheckCity.com, I can’t tell you how many times I was asked that question. Everything from:
- How do I get my paystubs to
- What does my W-4 say to
- I lost my W-2. Can you get me a new copy?
was asked to the Read more »
MAY 21ST, 2008
By CPA SAM
Q. I am a painter and my boss says I am an independent contractor. He says I have to pay all my own taxes and my paycheck will be my total wages instead of minus taxes. Is that correct?
A. Unfortunately, I can’t make the distinction of whether or not you are actually an employee. I can tell you that in my experience many workers in the service industry like painters, plumbers and other laborers are incorrectly classified. The issue is the level of control exerted over your work. For a definitive answer, you can complete form SS-8 and send it to the IRS for review. I wrote an article about this topic that you can read here. For purposes of this blog, I will describe the effect of both scenarios from a tax perspective.
If you are truly an employee, then the employer matches what you contribute to Social Security and Medicare. Depending on your state, you could be eligible for health benefits. Your employer will also pay FUTA and SUTA (state and federal unemployment). Your state also requires that enmployers maintain some sort of workers compensation coverage in case you are injured on the job. As an employee, you get a certain level of protection again lay offs and on-the-job injury that the employer must pay for. You can see why certain companies try to skirt these requirements. They are expensive.
As an independent contractor, you are liable for self-employment taxes and have no work comp or unemployment insurance coverage in most cases. This means, the “employer” saves a ton of money. He also moves the risk off his own business and sticks it to the contractor. This also means that you the contractor must file quarterly estimated tax payments with the IRS or risk large penalty and interest payments. You are liable for all taxes.
In a mis-classified situation where you are actually an employee but considered a contractor by your “employer”, it is very likely that the “employer” is not paying tax on his/her income either. The IRS has identified this as a significant source of the so-called “tax gap” and is looking closely at ways to find and audit organizations in these industries.
Good luck on your quest. Ignorance is often the cause of misclassification. However, more often than not, it is an outright attempt to hide from the government in my opinion.
MARCH 24TH, 2008
By CPA SAM
Q. What’s the difference between a W-2 and a W-4?
A. Through my tenure on the IRS IRPAC advisory group, I have learned one great rule, there are thousands of abbreviations and acronyms thrown around the government. Just in payroll there are so many of them that is hard for someone who works in that field to keep them straight, let alone those who are regular employees. You have the W-2, the W-4, the 1099, the I-9, 941, 940, 94X, 2678 and the list goes on. As time goes on, I hope to decode what some of these forms are used for in the payroll world. This is the first issue in that (probably very long-running) series.
Employers use the W-2 to report annual wages paid to their employees. If you have more than one job, you will receive one W-2 per employer. The numbers in those boxes are used by your tax preparer to determine your tax liability. If you are in the company 401(k) or pre-tax medical plan, the gross wage boxes will likely be different. This is ok.
Employees use the Form W-4 to report allowances and filing status to their employer. The numbers you submit will be used by your employer to determine your withholding amounts for Federal income tax only. Social Security and Medicare are calculated as flat percentages and are not affected by your filing status. The Form W-4 is your best tax planning tool. If you work with your CPA or tax adviser on completing this form correctly, you can minimize extra tax due and minimize the refund you receive at the end of the year. Whenever a major life change occurs, make sure you adjust your W-4 values accordingly as quickly as possible.
While they both start with W’s, they have distinctly different uses. Using the correct terminology will make your communication with the payroll department much more efficient and less confusing.
