LANDLINE

FEBRUARY 2011

ARTICLE 0211LL

 

PAYING AN EMPLOYEE

SOCIAL SECURITY QUESTIONS

 

PAYING AN EMPLOYEE

 

So many times we are asked how to pay someone that works for a owner operator. Usually, their preferred mode is to just cut them a check without payroll deductions. Since payroll taxes amount to approximately 10% of gross pay, if you pay someone $100 it is costing you $110. Then you need to get workman’s compensation insurance (W/C). That could range from 5 to 6 per cent up to 15 or 20 per cent. That would be on top of the $110. Then you need to have someone prepare the payroll tax reports. So the bottom line; most employers in the trucking industry avoid payroll. In those cases they usually do not buy W/C insurance either. We do not recommend doing that unless they are truly independent.

 

Q. What are the implications of not putting my employee on payroll?

 

A. If their employment is terminated they can go to file for unemployment insurance. However, it is then found you do not have a payroll account and you will be hit with back payroll taxes, penalties and interest.

 

Q. So then I pay back the taxes and penalties, is that all?

 

A. No. I have just been made aware of a situation where an employer paid their employee by straight check and they issued a 1099 and got discovered when their former employee went to collect unemployment. Not only did they have to pay the back payroll taxes and penalties, the W/C department was notified by the state. Because the employer did not pay the W/C insurance either, they were hit with a penalty for avoiding the W/C insurance of $100,000. That fine was levied by a particular state.

 

Q. Are you telling me to pay W/C insurance?

 

A. Yes. We are telling you that if you are paying a worker who is deemed not to be independent, to comply with the rules and stay out of trouble.

 

QUESTIONS ABOUT SOCIAL SECURITY

 

Q. If I’m collecting Social Security benefits do I still have to pay Social Security and Medicare tax on my earnings if I continue to work?

 

A. Yes. Whenever you work, whether an employee or an owner operator you must pay your Social Security and Medicare taxes. This is true, regardless of your age.

 

Q. I am at full retirement age (FRA) and still working. Do I have to report my earnings to Social Security?

 

A. No. When you reach FRA you no longer need to report your earnings to Social Security as there is no limit as to what you can earn.  You do, however, need to report earnings for those months in the calendar year before the month you reach FRA. For example, if you reach it in June, you would need to report your earnings for the five earlier months.

 

Q. How much can I earn and still get benefits if I have not reached FRA?

 

A. If you are younger than full retirement age, there is a limit to how much you can earn and still receive Social Security benefits without penalty. For 2010, you must deduct $1 from your benefits for every $2 you earned above $14,160.

 

If you reach full retirement age during 2010, you must deduct $1 from your benefits for each $3 you earn above $37,680 until the month you reach full retirement age.

 

This article has been presented by PBS Tax & Bookkeeping Services, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact us at 800-697-5153.  Visit our Web Site at www.pbstax.com.

 

“Everyone’s financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult with your own tax or accounting professional.”