1099s and Taxes
When a person is paid on the form, 1099-misc, all money earned by the individual is paid on an untaxed basis. It is then the responsibility of the individual to file and pay the appropriate taxes. These taxes can be owed to Federal, State and Local governments. Workers' compensation and unemployment issues also must be addressed independently.
W-2s and Taxes
When a person is paid on the form W-2, the employer automatically withholds and pays all of the necessary employee income taxes as required by the IRS. These taxes include: Federal Income Tax, State Income Tax, and FICA (Social Security and Medicare). In addition, the employer will pay all of the necessary employer taxes. These taxes include: FICA (Social Security and Medicare), FUTA (Federal Unemployment Tax), and SUI (State Unemployment Tax).
IRS 20 Point Checklist for 1099 Workers
Specific factors that are used by the IRS in determining whether an individual is an employee (W-2) or an independent contractor (1099) are listed below. This listing is commonly referred to as the "20 factors" test. This 20-point checklist is only a guideline; it does not guarantee that a person is correctly classified. Most agencies and courts typically look to the totality of the circumstances and balance the factors to determine whether a worker is an employee.
1. Must the individual take instructions from your management staff regarding when, where, and how work is to be done? A worker who is required to comply with other persons' instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if the person or persons for whom the services are performed have the right to require compliance with instructions.
2. Does the individual receive training from your company? Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner.
3. Is the success or continuation of your business somewhat dependent on the type of service provided by the individual? Integration of the worker's services into the business operation generally shows that the worker is subject to direction and control. When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business.
4. Must the individual personally perform the contracted services? If the services must be rendered personally presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the result.
5. Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract? If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hired supervises, and pays the other assistant pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.
6. Is there a continuing relationship between your company and the individual? A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.
7. Must the individual work set hours? The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control.
8. Is the individual required to work full time at your company? If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom he or she chooses.
9. Is the work performed on company premises? If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere.
10. Is the individual required to follow a set sequence or routine in the performance of his work? If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker's own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. Often, because of the nature of an occupation, the person or persons for whom the services are being performed do not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person or persons retain the right to do so.
11. Must the individual give you reports regarding his/her work? A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control.
12. Is the individual paid by the hour, week, or month? Payment by the hour, week, or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor.
13. Do you reimburse the individual for business/travel expenses? If the person or persons for whom the services are performed ordinarily pay the worker's business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regulate and direct the worker's business activities.
14. Do you supply the individual with needed tools or materials? The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.
15. Have you made a significant investment in facilities used by the individual to perform services? If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship.
16. Is the individual free from suffering a loss or realizing a profit based on his work? A worker who can realize a profit or suffer a loss as a result of the worker's services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee.
17. Does the individual only perform services for your company? If a worker performs services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor.
18. Does the individual limit the availability of his services to the general public? The fact that a worker makes his or her services available to the general public on a regular and consistent basis +indicates an independent contractor relationship.
19. Do you have the right to discharge the individual? The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which causes the worker to obey the employer's instructions. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications.
20. May the individual terminate his services at any time? If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer-employee relationship.
If after reviewing this IRS 20-point checklist you find your "consultants" should be W-2 rather then 1099 we can assist you with that transition.
NOTICE: Management Recruiters of Vancouver has provided the content of this document for general informational purposes only. You should not substitute this information for personal consultation with a qualified professional in the field, nor should you rely upon this information in taking any action. No attorney-client relationship will be created through your use of this document.
Tuesday, April 14, 2009
Friday, April 3, 2009
MARK TO MARKET CHANGES COULD CREATE OPTIONS FOR BANKS
ACTUAL TITLE
"Accounting rule change could end bank crisis, or make it worse"
The little-known Financial Accounting Standards Board (FASB) is poised to deliver today a change in accounting rules that proponents say will save the banking system — and opponents warn could bring even more ruin to the U.S. economy.
link for more detail:
(FASB 157) http://www.fasb.org/st/summary/stsum157.shtml
By Kevin G. Hall
McClatchy Newspapers
WASHINGTON — The little-known Financial Accounting Standards Board (FASB) is poised to deliver today a change in accounting rules that proponents say will save the banking system — and opponents warn could bring even more ruin to the U.S. economy.
The FASB is expected to relax the rules on how banks value assets that investors no longer are willing to purchase.
Current rules require banks to list the value of assets on their books at their current market price — a practice called "mark-to-market." The assets, however, at the center of the global financial meltdown — securities backed by bad mortgages — have no market. Investors simply won't touch them.
That's forced banks to lower the reported value of their assets, and quarter after quarter since mid-2007, they've had to write off more and more losses. That forces them to hoard their capital, rather than lend it, to offset their losses. That's how the housing crisis begat the banking crisis, which begat the U.S. economic crisis, which begat the global financial meltdown.
Banks say the mark-to-market accounting rule has worsened the financial crisis by making institutions appear weaker than they really are. The pools of mortgages, they say, should be valued not on what they're worth today, but what they are expected to be worth at maturity.
"Why should all assets be treated as if they're really for sale?" asked Bert Ely, a banking expert who gained wide recognition during the savings-and-loan crisis of the late 1980s.
During the S&L crisis, government regulators initially eased federal accounting rules for troubled S&Ls, which hid their negative worth and allowed them to make even worse decisions that led to their collapse and an expensive federal rescue.
Could it happen again?
Enter FASB. The Norwalk, Conn., private-sector entity adopts common standards that are accepted by regulators such as the Securities and Exchange Commission (SEC).
FASB moved with breakneck speed to consider the rule change after its chairman, Robert Herz, was roughed up by lawmakers on March 12 and warned that Congress could impose new rules if he wasn't willing to do so. Democrats, led by Massachusetts Rep. Barney Frank, the chairman of the House Financial Services Committee, insisted on the change.
FASB is expected to relax mark-to-market rules, sometimes called fair-value accounting, to recognize the maturity value of the mortgage securities often referred to as toxic assets.
Supporters think this will provide a tremendous boost to banks and ease the economic crisis.
"I think change in mark-to-market (rules) would make a big difference. If there's a bottom spotted on the economy, then the banking thing goes away. As soon as Wall Street sees a bottom, then you can make accurate forecasts. When you can do that, the banking crisis ends," said James Paulsen, chief investment strategist for Wells Capital Management, a subsidiary of Wells Fargo. "That's equivalent to a huge toxic asset (being lifted) because you bring private investors back in."
The rule change could allow banks to use one accounting standard for what it reports to the SEC, whose mandate is investor protection, and a more relaxed standard for reporting to banking regulators. That would ease the demand on banks to raise more capital in a distressed environment.
Critics think the change would allow banks to cook their books by hiding their truly bad assets behind longer maturity dates.
"The biggest problem with mark-to-market isn't mark-to-market, it's what part of the balance sheet is mark-to-market and what part is not," said Franklin Raines, the former chief executive of mortgage-finance giant Fannie Mae. If FASB relaxes the rule for distressed bank assets, he said, "You have got a distortion in the balance sheet that nobody can understand."
The changes would allow banks to revise their first-quarter 2009 reports to reflect a hold-to-maturity value on assets that no investor will buy now. Some advocates have proposed allowing this change to apply retroactively to the dismal last quarter of 2008, and perhaps even further back.
The change has been debated from the very start of the financial crisis in mid-2007, so action now raises eyebrows.
"It's an awkward time to do it," said David Wyss, chief economist for the credit rating agency Standard & Poor's in New York. He said it gives the appearance of sweeping problems under the rug.
The action could add more uncertainty, warned Gary Stern, the president of the Federal Reserve Bank of Minneapolis.
"I think it would raise as many problems as it answers," he told McClatchy Newspapers.
"Accounting rule change could end bank crisis, or make it worse"
The little-known Financial Accounting Standards Board (FASB) is poised to deliver today a change in accounting rules that proponents say will save the banking system — and opponents warn could bring even more ruin to the U.S. economy.
link for more detail:
(FASB 157) http://www.fasb.org/st/summary/stsum157.shtml
By Kevin G. Hall
McClatchy Newspapers
WASHINGTON — The little-known Financial Accounting Standards Board (FASB) is poised to deliver today a change in accounting rules that proponents say will save the banking system — and opponents warn could bring even more ruin to the U.S. economy.
The FASB is expected to relax the rules on how banks value assets that investors no longer are willing to purchase.
Current rules require banks to list the value of assets on their books at their current market price — a practice called "mark-to-market." The assets, however, at the center of the global financial meltdown — securities backed by bad mortgages — have no market. Investors simply won't touch them.
That's forced banks to lower the reported value of their assets, and quarter after quarter since mid-2007, they've had to write off more and more losses. That forces them to hoard their capital, rather than lend it, to offset their losses. That's how the housing crisis begat the banking crisis, which begat the U.S. economic crisis, which begat the global financial meltdown.
Banks say the mark-to-market accounting rule has worsened the financial crisis by making institutions appear weaker than they really are. The pools of mortgages, they say, should be valued not on what they're worth today, but what they are expected to be worth at maturity.
"Why should all assets be treated as if they're really for sale?" asked Bert Ely, a banking expert who gained wide recognition during the savings-and-loan crisis of the late 1980s.
During the S&L crisis, government regulators initially eased federal accounting rules for troubled S&Ls, which hid their negative worth and allowed them to make even worse decisions that led to their collapse and an expensive federal rescue.
Could it happen again?
Enter FASB. The Norwalk, Conn., private-sector entity adopts common standards that are accepted by regulators such as the Securities and Exchange Commission (SEC).
FASB moved with breakneck speed to consider the rule change after its chairman, Robert Herz, was roughed up by lawmakers on March 12 and warned that Congress could impose new rules if he wasn't willing to do so. Democrats, led by Massachusetts Rep. Barney Frank, the chairman of the House Financial Services Committee, insisted on the change.
FASB is expected to relax mark-to-market rules, sometimes called fair-value accounting, to recognize the maturity value of the mortgage securities often referred to as toxic assets.
Supporters think this will provide a tremendous boost to banks and ease the economic crisis.
"I think change in mark-to-market (rules) would make a big difference. If there's a bottom spotted on the economy, then the banking thing goes away. As soon as Wall Street sees a bottom, then you can make accurate forecasts. When you can do that, the banking crisis ends," said James Paulsen, chief investment strategist for Wells Capital Management, a subsidiary of Wells Fargo. "That's equivalent to a huge toxic asset (being lifted) because you bring private investors back in."
The rule change could allow banks to use one accounting standard for what it reports to the SEC, whose mandate is investor protection, and a more relaxed standard for reporting to banking regulators. That would ease the demand on banks to raise more capital in a distressed environment.
Critics think the change would allow banks to cook their books by hiding their truly bad assets behind longer maturity dates.
"The biggest problem with mark-to-market isn't mark-to-market, it's what part of the balance sheet is mark-to-market and what part is not," said Franklin Raines, the former chief executive of mortgage-finance giant Fannie Mae. If FASB relaxes the rule for distressed bank assets, he said, "You have got a distortion in the balance sheet that nobody can understand."
The changes would allow banks to revise their first-quarter 2009 reports to reflect a hold-to-maturity value on assets that no investor will buy now. Some advocates have proposed allowing this change to apply retroactively to the dismal last quarter of 2008, and perhaps even further back.
The change has been debated from the very start of the financial crisis in mid-2007, so action now raises eyebrows.
"It's an awkward time to do it," said David Wyss, chief economist for the credit rating agency Standard & Poor's in New York. He said it gives the appearance of sweeping problems under the rug.
The action could add more uncertainty, warned Gary Stern, the president of the Federal Reserve Bank of Minneapolis.
"I think it would raise as many problems as it answers," he told McClatchy Newspapers.
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