The Politics of Independent Contractors

As you know I live in Nevada.  There is an article in the Las Vegas Sun today about independent contractors and political campaigns.  In part it reads: Senate Majority Leader Harry Reid’s campaign has accused his Republican rival, Sharron Angle, of attempting to skirt tax law by paying her staff as independent contractors instead of employees subject to payroll taxes. Since she filed to run, Angle has paid her staff as consultants and as such has made no payments to the Internal Revenue Service. Although not uncommon for political candidates, the practice could raise legal issues with the IRS if she doesn’t carefully follow the rules dictating when a worker can be classified as an independent contractor.

What I found most fascinating were the comments made about the story.  For example one commenter wrote:

So, what's the point?? My wife has worked as an independent contractor for years. It's not illegal. By putting this article in the paper, Harry Reid shows his ignorance of how many small businesses and individual workers handle their taxes.

As a matter of fact, it's a common practice and more convenient for some people to either hire independent contractors or to work as independent contractors.There's absolutely nothing wrong here. This is a non-story.

But whether someone is an independent contractor or an employee is not a matter of "convenience" or "common practice" it is suppose to be a matter of IRS regulations.  Right now the GAO is guesstimating that over 30 million workers are misclassified.  States are passing legislation right and left to make it more "costly" to misclassify workers and millions of dollars are lost in revenue for SUI etc due to this type of misclassification.

My question here is three-fold.  First, If our political candidates don't think enough of our tax laws to follow them when they are not holding an elected office can they still create, and vote on legislation that will help keep the country moving in the right direction which ever direction that may be?

Second, why is it that no one seems to understand the basic rules of independent contractors?

And third, should people who deliberately break tax laws for their own financial gain (remember she doesn't have to pay FICA or SUI or FUTA so the campaign saves thousands of dollars which can be spent on ads and such) be given a chance to run our country?  I include all those who hold appointed offices as well.  Like paying for Nanny taxes or back income taxes.

Let us know what you think.

Minnesota Providing Guidance on 2010 Withholding Requirements

Not many states have had time to react to the Affordable Care Act.  So they are beginning to advise payroll professionals on how to handle reporting and taxation for 2010.  Minnesota is the latest to give us some guidance.

The 2010 Minnesota State Legislature did not enact legislation incorporating into state law any of the changes to the IRC contained in the Affordable Care Act.  So for the definition of wages payroll departments will have to include the fair market value of insurance benefits provided to nondependent adult children as taxable wages for 2010.

It appears that this will be a growing trend for the rest of the states with income taxes.  And I think it will also be a trend for the SUI taxable wages as well. 

It would be a great idea if payroll departments get out in front of this by informing employees of the tax consequences of this now before the employee gets hit with a big state income tax bill next year.  Employees may want to adjust state withholding to compensate while they still have some time left.

How are you handling the state taxation of adult children insurance coverage in your department?  Let us hear from you.

Military Spouses in Ohio Just the Latest

Since the 2009 change in tax law under the Military Spouses Residency Relief Act that permits military spouses to be able to determine their residence for taxation while on assignment with the military spouse more and more states have weighed in.  The latest is Ohio.

This act basically states that a civilian spouse of an active duty military service member is not subject to income tax of the state in which the spouse is present if the service member and the spouse have the same state of residency and that state is in another state other than the one in which the service member is stationed.

Ohio's Department of Taxation is now making the IT-MIL-SP form available for spouses of active duty military.  This form allows the spouse to exempt themselves from Ohio taxation for wages earned in Ohio if that is the duty station of the military spouse but not the actual resident state of the spouse.

Payroll professionals need to research this area carefully as many of the states are now using this type of form to allow the spouses to opt out of taxation on their payroll check.