PODCAST: Navigating Tax Implications: Employee vs. Subcontractor

Podcast Navigating Tax Implications Employee Vs. Subcontractor

Written by Jeff Dvorachek

March 28, 2024

Welcome to the Tax Insights Podcast, where we break down complex tax topics into bite-sized how-tos. In this episode of Tax Insights Podcast, Jeff Dvorachek explores the complexities of employment classifications. Stay tuned for insights into the corresponding tax obligations and their implications

Today on Tax Insights, Jeff discusses the intricacies of employment classifications. In this episode, we’ll explore the differences between employees and independent contractors, and the criteria that determine work relationships. We’ll also take a closer look at the tax obligations and implications associated with each classification. Let’s tune in!

Host: We’ve been having a great conversation the past couple of weeks talking about being an employee or a subcontractor and things like that.

Jeff: Right, you’re going to pay some of your social security tax. Your employer is going to pay some of the social security tax and if you’re an independent contractor you’re kind of wearing both hats. You pay both halves of the social security and Medicare. You’re paying a little bit more tax but at the end of the day hopefully you’ve negotiated a little bit higher wage or higher price in order to cover those costs.

Host: People think, well, it’s what’s the big deal we’re still paying the same amount of tax. There’s a lot of other things to consider Terry about being an independent contractor versus an employee. Let’s say over time as an independent contractor you don’t get overtime unless you kind of build that into your contract.

Jeff: Sure, and I also know that being a subcontractor you have the opportunity to have more write-offs or business write-offs for yourself than you do as an employee, correct?

Host: That’s right, because you get to deduct things that employees don’t get to deduct like your mileage and other expenses that you have work clothes things like that. And you can take those all as deductions maybe even if it’s if you do enough of this, you know maybe there’s a chance you can write off some of your vehicle or quite a bit of your vehicle within your small business.

Jeff: Sure. Now can a current employee, if they want to be a subcontractor, can they go to their boss and say you know what I no longer want to be an employee I want to be a subcontractor. Is that possible or again is that like really a case by case study because not every employer wants that either correct?

[Host]: Well that’s right, and just like we talked about over the last couple of weeks you really have to fit within those guidelines of being an independent contractor in order to be one. You know but there’s there’s things though as you’re going through that conversation with somebody that you know you just don’t think about we talked about that over time. But there’s also you know you have to get your own insurance. You know there’s a common insurance really doesn’t cover you. You know liability coverage doesn’t cover you from the you know from your from the person that you’re working for so you have to get that on your own. And those are the things that you know some small businesses just don’t really think about.

[Host]: Yeah again this is why it’s important to understand you know are you an employee or are you a subcontractor and understanding again all the the pros and the cons right because there isn’t this magic this is the right answer. It really is depending upon what you’re doing.

Jeff: Well that’s just said and you really want to be careful as both the employee and the employer in this situation because there is definitely some interest and penalties that can be assessed on the employee. On the employer if they misclassify so it kind of goes both ways that you really have to have that good fact pattern in order to do this share independent contractor employer relationship.

Host: Jeff great information each and then we carry text inside if our listeners would like to connect with you and the team over at Hawkins Ash. How do they do that?

Jeff: I would go right to our website Hawkins Ash dot CPA and go to that CPA HQ section or go to you know YouTube’s of the world and watch. Watch videos that we play which are great.

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Jeff Dvorachek
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.

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