Have been audited twice and all is good. Paying a driver by 1099 is all in how you set it up. The thing with 1099 is there is no set definition for independent contractor. There are guidelines for each state and for the federal government to determine what a IC is. Then the courts and government agencies decide if you are employee or IC. If he is just going to buy a truck stick someone behind the wheel and pay them by 1099 then don't. You will lose everything. Hire a good CPA and lawyer and set it up right.
Paying a driver on a 1099
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The IRS relies on computers today to find red flags. They can't flag every return because they use 1099. There are many companies like construction where contractors are used industry wide. They have to rely on another red flag to initiate an audit. Also the IRS only has a workforce to audit 1% of the population a year. Being there are so many jobs out there that is a very small number when it comes to truckers. It's almost like hitting the lottery.
To each his own. How one takes care of their employees is not my problem. I know from the employee end I can do my part and not work for any of these people. I know back in my construction days the workers loved 1099's as young people. To them it was a ticket not to file personal taxes and have more income. I'd say there are drivers out there like that too.
They file a return that shows themselves as self employed. If found during an audit, this is known as a fraudulent return and can result in large penalties.
The ones on here that claim it is legal have not run into the issue. It may not be spotlighted in their area yet.
However, unlike most on here, I have prepared business and personal returns for a majority of the many states. I have run into issues with the IRS on this and expect it to be a bigger issue in the future.
Will it be caught?
Consider this. When you are speeding, are you caught?
The more you do it and the longer, your exposure becomes greater.
To come on this forum and state that it is legal with no supporting documentation and references is nothing more than an opinion.
Most of the time they are caught when the recepient of the 1099 either, files taxes for the first time as a contractor and owes the IRS; or gets hurt and seeks compensation. I know the penalty is more than harsh and depending on how long an employee has been with you and how how many you have...you could be talking hundreds of thousands owed.
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the workers job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
- When and where to do the work.
- What tools or equipment to use.
- What workers to hire or to assist with the work.
- Where to purchase supplies and services.
- What work must be performed by a specified individual.
- What order or sequence to follow when performing the work.
The main reason people have a problem paying on a 1099 is when the driver FAILS to pay his taxes. It is not illegal to pay on 1099. Some try to put the blame on the company if they get caught to avoid taking responsibility. If you are paid on a 1099, you may want to get an occupational accident policy. If you pay on a 1099, you might want to require that the driver take out his own occupational accident policy. It takes the place of workers comp. Classification of drivers under a 1099 can be a fine line, but if handled properly, can work well for everyone. I have worked under a 1099 myself and know many drivers who have worked the same way. Under a 1099, drivers pay the company's share of the social security tax. It amounts to about 7.5% of his pay. Most 1099 drivers are paid percentage and can make more under a 1099 than they would with a W2, even paying the extra social security tax.
Once again, I will restate that the IRS could care less as long as the driver pays his taxes. I have worked on a 1099, filed and paid my taxes. It has never been an issue. I have spoken with the IRS during that time and have never had a problem. If the driver wants to evade paying his taxes and sic the IRS on the company to place blame and then they could possibly look to the company for their money. If any driver agrees to work on a 1099 and then tries to pass off responsibility he should be thrown in prison for tax evasion. I know number of other drivers who have worked on a 1099 and paid their taxes. I don't know of a single one that has had a problem because of working on a 1099.
You have a link to proof of the claim?
You can drive 15 mph over the speed limit as well, run a false log and never be caught. But, in fact, know that it is not right, but they do not bother you.
I have spoke at length with the IRS. Like I said, it might not be in your area, but it will be. I do not just have a history of doing one state tax returns.
i got my rear in hot water over it soon as a driver did his taxes and owed $6,500 he threw me under the bus a few years later after not being able to pay there money. The texas workforce commission called saying i never paid them for unemployment from the employees i had, they also went back three years that bill was $78,200 and was due in 30 days after the IRS was done the first bill was $121,000 for six people i employed for the last three years and they could still go back even longer.
After getting a lawyer to help out i ended up selling two trucks/trailers to pay them off. All it takes is one bad driver to put you under the bus ITS NOT WORTH IT!!!!
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