what do we do about an employer that doesn't take out deductions?

Question

my hubby has a new job,great pay,but we didn't know that STRAIGHT PAY ment there would be No deductions taken out. no taxes,no ss, nothing.he also gets no overtime pay,no sick pay, no holiday pay. How dose my hubby cover his a&&,.we don't need any trouble from the IRS. can anyone help us.Please explain wht he needs to do.

Answer 1

It sounds as if your husband is considered an independent contractor. There is a form on the IRS web site that you can use to determine if this is a legitimate option for the employer. They actually cannot just decide to do that--contractors must meet certain criteria, otherwise they are employees subject to withholding. The reason for this is because employers are supposed to be paying half of the taxes and they need to have a legitimate reason to be placing this burden entirely on the worker. The best way to avoid trouble with the iRS is to tell the IRS and let them make the decision.

Answer 2

Basically there are two problems that you need to examine:

Tax withholdings: The IRS has a way that if your employer does not withhold taxes, you can make quarterly payments. These payments are estimates based on your income. In the end, I would be similar to the way that your tax money is withheld. Basically, the best way for you to do this is take the money and put it into a savings account every paycheck and mail the IRS the bill when it is due.

Self employment tax: This is true; your husband will have to pay the employment taxes (Social Security) that is normally handled this way: The tax is 15% and usually the business is responsible for 7.5% and you are responsible for the other 7.5%. It is taken out of your paycheck, if you work for a "normal" employer. Some employers do hire employees as contractors simply because they do not want the cost and hassle of the self-employment tax.

State Taxes: you need to contact your state tax office if you do not live in a state w/o state income taxes. Ask them if you need to do quarterly payments of state taxes.

There is a hidden benefit here though, for people that are working for "normal" employers, we have a more difficult time with unreimbursed business expenses. For example, if your boss makes you drive your car from work to an offsite job location, but refuses to pay you for it, then you can write it off on your taxes. However, for most people there are no benefits until the expenses reach 2% of your income; then ONLY the amount above 2% can be written off (this is called a 2% floor).

However, with a contract employee that fills out a schedule C or CE then you can take off the expenses dollar for dollar with out the above 2% floor.

As far as federal taxes go, you will need to file a schedule SE and a schedule C. I would recommend the above recommendation of talking to a tax advisor as they can give you more information about your state and what to do with the IRS. If you started the job this year, you are OK (the IRS is reasonable about many more things lately). But waiting until April 15th, then you can be charged a penality.

Short Answer: CONTACT THE CPA NOW and don't worry, there are some benefits to your husband's status.

Good Luck!

Answer 3

Your husband must be considered a sub contractor or independent contractor. This means all taxes, Federal, state and local taxes are your responsibility. You will also have self employment tax due. I am not sure what type of work your husband does but if he has expenses or travel these will be deductible. He really needs to find a professional tax person to help him figure how much to save back or set up estimated tax payments. Depending what state you are in he might not be covered by workers comp. if he were to get injured on the job it could be disastrous. Tax pro worth the money.

Answer 4

Your husband needs to file quarterly estimated taxes for federal taxes and most likely state income taxes (assuming your state charges them). You can download the forms and instructions from the IRS.gov and your state website. This can be a chore and a good accountant or bookkeeper can usually do it for you at minimal cost.

The taxes are going to be on his net pay after expenses, so you need to keep track of all expenses relating to the "business". Again a bookkeeper can help you set this up or you can use a program like quicken home and business.

The key is to file your quarterly payments on time, so save up money from each paycheck.

Answer 5

Now in most states,your employer doesn't have to pay holiday pay. But the rest he/she does. Go in person to the Department of Labor-Wage and Hour Division. Make sure your husband has all his paystubs from the first paydate he received on this job. Ask to speak to an investigator and explain your concerns to him/her.

Answer 6

Your employer is not allowed to make a deduction from your pay unless:

your contract says they can - and your employer has given you a written copy of the part of the contract which says so, or a written explanation of it, before making the deduction
it is required or authorised by law, such as income tax, national insurance or student loan repayments
you have agreed in writing to a deduction before the conduct takes place for which your employer proposes to make a deduction
http://www.direct.gov.uk/Employment/Employees/Pay/PayArticles/fs/en?CONTENT_ID=10027228&chk=%2BjJLLe

Answer 7

You should contact the IRS or a tax professional and ask them what to do. They will know best.

Answer 8

start taking about 22% out of his check and putting in a savings account right away so at least you will have something when taxes are due!!

Answer 9

in case you probably did no longer get carry of the countless contribution to boot your ROTH 401k (ie forfeiture allocation or income sharing allocation) then your w-2 is nice and likewise you will take the classic IRA deduction.

Answer 10

spend half an hour with the man from the irs,tell him your tale.
regards lf