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The new middle-class tax

Discussion in 'Political Discussion' started by khayos, Mar 23, 2010.

  1. khayos

    khayos In the Starting Line-Up

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    One item left unanalyzed as the healthcare discussion raged was the impact on the construction & other trades businesses.

    Scenario: Small trades business does not have healthcare for employees (heard this on local radio)

    Likely result: Business owner will "fire" all employees then bring them back as independent contractors, avoiding the penalty of providing insurance.

    The tax: Some independent contractors now opt to pay the fine in MA ($300-$700) rather than take on the cost of health insurance. They'll now either pay a higher rate of at least $2000 -- it's possible they'll have to pay both fines. So in an already bad climate for these folks, there's even more money out of their pocket.
     
  2. chicowalker

    chicowalker Pro Bowl Player

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    For starters, rules defining employees versus independent contractors can make it hard for a business to pretend its employees aren't employees. (I don't know how much variation there is by state, though.)

    also, aren't companies under 50 employees exempt? I think the vast majority of companies in these fields have fewer than 50 employees.
     
  3. Real World

    Real World Moderator Staff Member

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    When you 1099 someone, they are their own proprietor, or contractor. They are not an employee of a company. You pay them in full, and they would be responsible for paying their own taxes. So if I were 1099 by Chico Inc., you would pay me in full, without taxes. At $25 an hour persay, you'd write me a check for $1,000 at the end of my 40 hour work week. It would then be my responsibility to file & pay all my taxes. Some people like this, some don't. It all comes down to how much you're being paid, and how good you do your taxes.

    The exemption limit is indeed 50 employees. The penalty is $2,000 per employee if you're over 50. So a business that hovers over 50, will likely cut down to 49, and save itself over $100,000 in penalties. There is now a six figure incentive to freeze, or retract down to 49 employees.
     
  4. chicowalker

    chicowalker Pro Bowl Player

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    agreed that there are some screwy incentives if you're a business hovering at the 50-employee mark. Without a sliding scale, that's inherent in any cutoff.

    On the employee / contractor front, it isn't that simple. You're supposed to 1099 contractors whom you've paid over $600 in a year, along with attorneys, landlords and then some others depending on the industry. But just because a company gives a worker a 1099 doesn't make them a contractor rather than employee.

    There are guidelines in place that dictate whether a worker is a contractor or employee. Again, it may vary by state, but these include things like whether the worker sets his own schedule, uses his own equipment, has the freedom to do hs work as he pleases, does work for other companies, etc. -- in other words, they expressly are aimed at keeping companies from labeling employees independent contractors

    do companies abuse that anyway? Sure. But many get caught, too, and I'd expect enforcement of this to be heightened if the healthcare bill creates another incentive for businesses to call their employees something else.
     
  5. BelichickFan

    BelichickFan B.O. = Fugazi PatsFans.com Supporter

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    #24 Jersey

    The Senate bill changed the "50 employee" cutoff to "50 Full Time Equivalent" so part time or contract workers still get counted; two half time employees don't equal zero full time employees but they equal one FTE.
     
  6. Real World

    Real World Moderator Staff Member

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    In the construction field, I can tell you, that it is as simple as 1099'ing someone. In an office environment, that might be different. I'm not sure how someone would 1099 their secretary for example. They could 1099 a salesman I'd think. It would depend on the specific job, but I think the point is, that those who previously didn't even consider using the 1099 with their employees, but could, now will.

    Well, an extra $10 billion dollars, and 16,000+ more agents at the IRS, pretty much reinforces your words I bolded. Like I said in another thread, "Papers please!".
     
  7. Real World

    Real World Moderator Staff Member

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    Contract employees, and a 1099 are not one and the same. Someone operating under a 1099, is his own contractor. You would be operating as BelichickFan Inc. more or less.
     
  8. BelichickFan

    BelichickFan B.O. = Fugazi PatsFans.com Supporter

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    #24 Jersey

    No wonder they need all these new IRS agents to figure all this stuff out. What a mess this is going to be. Not to mention the cost of the government subsidizing all these under 50 employee contractors.
     
    Last edited: Mar 23, 2010
  9. chicowalker

    chicowalker Pro Bowl Player

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    Unless construction is in fact different from most industries, that's just not the case (re 1099s and independent contractors versus employees). You've got the tail wagging the dog.

    I'm skeptical that construction is different. One of the first things that came up on a quick google search was an article on just this -- 1099s and misclassification of workers, in the construction field:

    Construction Executive Magazine - Special Section

    If a construction worker was essentially his own boss, and came in to a job to help with certain tasks, then went to another job, he'd be an independent contractor. If he works for the same company ll year, during the hours they set, at the direction of their foreman, you can 1099 him, but if you get caught you're probably paying some severe penalties, because you're not going to pass the test.

    (In an office setting, yes, it would be harder to make the case that a secretary is an independent contractor than it would be for a salesperson. The test would still apply to the salesperson, though. If they rep other products / companies, you've probably got a good case; if they only work for you, and they're required to submit contact reports and meet minimum contact and sales thresholds, etc., you probably lose.)

    There's some grey in these areas, but for the most part companies would be hardpressed to justify something as blatant as simply changing all employees to 1099s. The tests and the fact pattern of how you went about it would probably result in nasty fines. Plus, as BelichickFan pointed out, it may be moot if the bill goes by FTEs rather then "employees."

    At the margin, though, it certainly would be another motivation to try to get away with labeling worker #50 an independent contractor (and skimping on the FTE count, I suppose).
     

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