“Tax Plans May Give Your Co-Worker a Better Deal Than You”
^^typical NYT with a strawman/made up story to support their thesis. (The stupid thing is that they didn’t need to make up the hypo.)
If the above hypothetical is true, then the catering company is breaking the law. Either both are employees are neither are.
Other than that, carry on NYT.
To say that the catering company would be breaking the law is picking nits, here. The system rewards contractors above employees working for wages. That means that people will move from being employees working for wages to being independent contractors, as an otherwise pointless method of tax avoidance, because it will be so very lucrative to structure a job as a contract job.
For example, big internet companies have lots of highly-paid employees, on whom they shower benefits. Those companies will jump at a chance to give everybody a $10,000 raise (or whatever) for little cost to the company. Why wouldn’t they? Same for big law, as has been reported. Same for doctors and dentists, entertainers and sports figures.
Tax reform proponents claim that the IRS (the very agency they’ve been systematically defunding) will crack down on people who try to become contractors. Yeah, right. With this sloppily drafted legislation, tax professionals will carefully delineate legal ways to for high earners to get the attractive low tax rates, and legal tax avoidance by high paid earners will be the norm, because of course it will. Tax professionals would be committing professional malpractice by NOT advising their clients to form S corps.
Isn’t everyone who drives a UPS truck an “independent contractor”? Employers have been playing this game for a while, so they can deny benefits. Now they can entice workers by telling them their tax rate will be less.
And caterers may hire extra staff for a busy time of year, or a specific event, and classify those extra workers as independent contractors. Or they may be placed there by a temp agency. It happens a lot in catering.
Uh, no. The law on what is an employee is not changing. (Of course, journalists are not the best critical thinkers.)
yeah, and it does that today as 1099’ers can deduct a lot of things that an employee cannot.
That is where you are wrong. An employee cannot just up and change his/her classification. Federal (and many state) laws today will not allow it, and won’t allow it tomorrow (after any tax change).
btw: don’t forget that contractors have to pay both sides of FICA.
@“Cardinal Fang”
I am sure there are lots of mistakes in the new tax plan , but there is no need for you to create fantasy situations.
For you to be an independent contractor, rather than an employee, requires passing a number of tests specified by the IRS, including the following:
- Ability to work for more than company at a time.
- Setting your own work schedule, and possibly work location.
- Getting paid upon job completion or upon hitting certain milestones (as opposed to a regular paycheck).
- Using your own equipment, as opposed to the company's equipment.
It should be clear from this list that most Silicon Valley engineers will remain employees, regardless of the fact that they would prefer to be contractors.
Far from it. They are employees and often union employees. Contractors and independent workers have to control their own work, schedules, require little supervision, etc.
Microsoft was the end of the ‘call them all independent contractors’ era. Employers are getting around the benefits and health insurance rules by making people part time employees.
Contractors take a lot more risk. They have to cover their own health insurance, dental insurance, disability insurance, liability insurance, and don’t get cheap life insurance. If they have a pass through corporation they have to pay both sides of social security and make various federal, state, and sometimes local tax filings. They don’t get paid when they are out of work, and in most cases if they have a pass through (typically it might have only them as an employee), they can’t file for unemployment BUT often have to pay unemployment taxes anyway. If there is a recession, it can be like a game of musical chairs – if you have a contract you MIGHT keep it, but if you happen to be between gigs, good luck finding another one. Same thing if you lose your gig in 4th quarter of the year – prepare to wait until companies the new year’s budget to work with and have everyone back from the holidays for hiring decisions. Sometimes you don’t get paid right away, too. I have been doing it for a long time, and it is a lot of work.
If this legislation passes, I stand by my assertion that 80% of fortune 500 CEO’s will reclassify themselves to be corporations for tax benefits. As far as silicon valley engineers go, the most sought out (300K+), will probably do so. I’d say 50%+.
The IRS has been so chronically underfunded, and will remain so, that these new cases of “pushing the edges” (cheating) will remain. One of the best investments, if you were to only judge investment on ROI, would be to increase funding of the IRS.
I am not sure how shareholders will feel about this reclassification. To be a true pass through, the corporation gives up some control over the work of the employee. I’m not sure it would fly for CEOs to do this.
There is an interesting (provocative?) article out there by a tax law professor that suggests independent contractor is not the be-all/end-all of this question. Google Daniel Hemel or “trillion dollar hole” for the post. I’m not quite ready to be a guinea pig yet.
I agree. The point is that employees who make a lot of money will have tens of thousands of dollars of incentives to make themselves corporations. And they will, just like people did in Kansas.
The big value for CEO’s, particularly in Silicon Valley, is stock options. And those are much harder to distribute to non-employees, and when they are, they have much less favorable tax treatment. Ditto if a top engineer wants to incorporate him/herself. Any options – assuming that the company will approve them to non-employees without Board approval – become non-qualified for tax purposes.
And of course, said engineer is then on the hook for a ~15% FICA tax, loses the 401k match (6-8% of salary), loses the stock purchase discount (@15% typically), has to purchase his/her own medical insurance and other benefits – at individual - not group rates. Ain’t so easy nor beneficial.
Many companies have rules right now that limit how long a contractor can stay so they won’t start claiming they are employees and wanting the same benefits employees are offered. I wonder if they would waive those rules just for the executives.
^^That just doesn’t make any sense. Let’s assume that a CEO could save $200k by going independent. If so, the Board would just increase his/her salary by that amount, and then gross that up for the additional taxes.
Just impossible for most “employees”. It cannot be done. It would violate federal and state labor rules.
https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation
It doesn’t matter what “most employees” do. It matters what individuals with high income from salary would do.
If (and I stress the if—I don’t know whether it’s possible or not) the choice for the CEO and company is to increase the CEO’s salary by $200k taken from corporate earnings, or to restructure the CEO’s contract so that the payment from corporate earnings remains the same but the CEO gets an additional $200k from the general revenue of the United States of America, I’m going to guess that most companies would take the second approach.
A classic commons problem, this turns out to be.
“Larry Kudlow, who advised Trump during the 2016 campaign and is a big supporter of the tax cuts for businesses, said the changes for individuals and families amounted to a “mishmash.”
Asked if the tax package in aggregate would mean a middle-class tax cut, Edward Kleinbard, a former chief of staff for the Joint Committee on Taxation, said: “That’s delusional or dishonest to say. It’s factually untrue.”
He added, “The only group you can point to that wins year after year and wins in very large magnitude is the very highest incomes.”
Well, I think we can all relax now that we’ve been told the tax bill will be not only important, but SPECIAL.
Well then, was your use of the word, “employees,” in post 2071 incorrect?