Contract labor vs employee?

Question

My husband worked for a company that listed him as a contract employee so they did not have to pay any of his taxes. He was not contract labor, he was an actual employee of the company. He was paid by the hour, (when he was paid!). How and who do I report this to? We don't want to get into any trouble with the IRS because we didn't make tax payments that should have been paid by the employer. He lists all of his employees as contract labor, even his office worker. We live in Midland, TX and I have looked up what constitutes an employee vs contract labor. Also, he has still not received his last paycheck.

Answer 1

He is a subcontractor basically, he is responsible for his own tax and insurance etc. The government does a lot of contract work for jobs that have time limits on them. I'm not sure who he worked for but they must qualify to run employees that way. Check with your local labor board. As far as the tax issue it depends on how much he earned in the year to how much he will owe. Check with an accountant for help on that.

Answer 2

Your husband should have been declaring his income and paying the appropriate taxes on what he was paid. If he hasn't, it probably isn't too late, but it's going to be a wallop of a tax bill.

The second issue is the employer committing the very common act of deciding everyone is a contractor for his own convenience. There are clear rules regarding who qualifies as a contractor and who is an employee, such as control over the work (and right to refuse it), whose office or equipment the staff member uses, whether they have set or regular hours, etc.

Contact a tax accountant for the first thing and your state/provincial labour board for the second thing.  

Answer 3

you know, a lot people are confused about this. Here's how it works:

The only thing your employer has to pay is their portion of the unemployment and social security. They don't have to withhold your taxes.

If they don't withhold taxes, it is your responsibility to put aside enough of your paycheck to pay those taxes.

Either way, it works out the same. You owe the same money to the IRS. They don't care who withholds it as long as they get it.

Even if you are an "employee", you could ask your company not to withhold your taxes. Then it would be your responsibility to do it yourself.