D dealmaker Aug 22, 2019 #1 There are significant tax advantages for independent contractors (IC) vs. employees. • ICs deduct business expenses, whereas, the new tax law (TCJA) suspended “unreim- bursed employee business expenses” as miscellaneous itemized deductions. • ICs are eligible for TCJA’s 20% qualified business income (QBI) deduction, whereas, em- ployees are not. • ICs owe 100% of social security and Medicare taxes (SE tax) on net business income, whereas employers and employees share social security and Medicare taxes 50/50 on salaries. • ICs are not enrolled in employer health insurance and retirement plans, whereas em- ployees are. ICs can have individual health insurance and retirement plan AGI-deduc- tions. You cannot make this determination of IC vs. employee status based on your preference alone. Learn the IRS rules on worker classification. (See IRS resources and Client Letters below.) Current developments Some "self-employed individuals" (SEI) hire "professional employer organizations" (PEOs), known as employee leasing companies, to join the PEO payroll and employee benefit plans. The SEI reimburses the PEO for these employment costs, plus a fee. The IRS recently balked at this practice for SEIs. https://greencompany.s3.amazonaws.com/Client+Letters/How+To+Be+Eligible+For+Independent+Contractor+Status.pdf
There are significant tax advantages for independent contractors (IC) vs. employees. • ICs deduct business expenses, whereas, the new tax law (TCJA) suspended “unreim- bursed employee business expenses” as miscellaneous itemized deductions. • ICs are eligible for TCJA’s 20% qualified business income (QBI) deduction, whereas, em- ployees are not. • ICs owe 100% of social security and Medicare taxes (SE tax) on net business income, whereas employers and employees share social security and Medicare taxes 50/50 on salaries. • ICs are not enrolled in employer health insurance and retirement plans, whereas em- ployees are. ICs can have individual health insurance and retirement plan AGI-deduc- tions. You cannot make this determination of IC vs. employee status based on your preference alone. Learn the IRS rules on worker classification. (See IRS resources and Client Letters below.) Current developments Some "self-employed individuals" (SEI) hire "professional employer organizations" (PEOs), known as employee leasing companies, to join the PEO payroll and employee benefit plans. The SEI reimburses the PEO for these employment costs, plus a fee. The IRS recently balked at this practice for SEIs. https://greencompany.s3.amazonaws.com/Client+Letters/How+To+Be+Eligible+For+Independent+Contractor+Status.pdf
