New Form for Employees Misclassified as Independent Contractors

In 2007 were you an employee whose employer paid you as an independent contractor? Employees usually receive a Form W-2 while independent contractors usually receive a Form 1099-MISC.

Generally, a worker who received a Form 1099 for services provided as an independent contractor must report the income on Schedule C and pay self-employment tax on the net profit using Schedule SE. However, if the worker was actually an employee, rather than an independent contractor, the worker is not required to pay the full self-employment tax, and expenses can only be deducted as an itemized deduction.

Beginning in 2007, Form 8919, Uncollected Social Security and Medicare Tax on Wages, may be used if you were an employee and your employer did not withhold your share these taxes and you meet certain criteria. These taxes will then be credited to you social security records.

To be eligible to use Form 8919 you must meet one of several criteria indicating that you were an employee while performing these services. The criteria include:

• You filed Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and received a determination letter from the IRS stating that you are an employee of the firm.
• You have been designated as a “section 530 employee” by your employer or by the IRS prior to January 1, 1997.
• You have received other correspondence from the IRS that states you are an employee.
• You were previously treated as an employee by the firm and you are performing services in a similar capacity and under similar direction and control.
• Your co-workers are performing similar services under similar direction and control and are treated as employees.
• Your co-workers are performing similar services under similar direction and control and filed Form SS-8 for the firm and received a determination that they were employees.
• You have filed Form SS-8 with the IRS and have not yet received a reply.

For more information see Form 8919, Uncollected Social Security and Medicare Tax on Wages available on the IRS Web site at IRS.gov or by calling 800-TAX FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Form 1099-MISC, Miscellaneous Income

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Can You Use Schedule C-EZ?

Want to save time and trouble when filing taxes for your small business? You may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business income and expenses on your 2007 Form 1040 federal income tax return. The maximum deductible business expense threshold for filing Schedule C-EZ is $5,000.

Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship).

Schedule C-EZ:

• Has an instruction page and a one-page form with three short parts — General Information, Figure Your Net Profit, and Information on Your Vehicle.
• Includes a simple worksheet for figuring the amount of deductible expenses. If that amount does not exceed $5,000, and if your business did not have a net loss, you may be able to use the C-EZ instead of Schedule C. (Other restrictions apply; be sure to read the instructions carefully.

Schedule C:

• Is two pages long and is divided into five parts — Income, Expenses, Cost of Goods Sold, Information on Your Vehicle, and Other Expenses.
• Requires more detailed information than the C-EZ. The instruction package is 10 pages long.
• Must be used when deductible business expenses exceed $5,000 or when a business has a net loss.

Using Schedule C-EZ can save time and reduce paperwork burden for eligible businesses. More information about Schedule C-EZ and reporting net profit for sole proprietorships can be found on the IRS Web site at IRS.gov.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link – Publication 334, Tax Guide for Small Business (PDF 407K)

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Taxes For The Self Employed and Independent Contractors

Self Employed or an Independent Contractor?

To first see if you are self employed or an independent contractor, let us first read the definition taken
right from the IRS.gov web site:

Self-Employed

You are self-employed if any of the following apply to you:

* You carry on a trade or business as a sole proprietor;
* You are a member of a partnership or limited liability company that files a Form 1065, U.S. Return of Partnership, that carries on a trade or business; or
* You are otherwise in business for yourself.

You are also self-employed if you have a part-time business, in addition to your regular job.

Independent Contractor

The general rule is that an individual is an independent contractor if (the person for whom the services are performed) has the right to control or direct only the result of the work, and not what will be done and how it will be done or method of accomplishing the result.

People such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case. The earnings of a person who is working as an independent contractor are subject to Self-Employment (SE) tax.

And to add to this, people who make money on the internet are also considered self employed.

Now that we know the definition of SE/IC, I will later go into more detail on what deductions
are allowed for the various jobs, as that is a separate, very long post in itself.

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Tim Watson is a tax preparer during the season who also runs an SEO directory and an iPod directory. You may use this article as is provided the resource box stays intact.