Answers to the most frequently asked questions
Below are some accounting-related questions we get from our clients. To find the answer, simply click on the question:
| 1. |
When do we have to file 1099s and W-2s? |
| 2. |
How do I determine if an employee is exempt or non-exempt? |
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What are the 2008 IRS limits for Social Security and Medicare tax? |
| 4. |
What are the 2008 IRS limits for mileage reimbursement? |
| 5. |
What is the difference between an employee and an independent contractor? |
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1. When do we have to file 1099s and W-2s?
You must give a 1099 to any independent contractor who provided $600 or more of services to your organization in the previous year. Similarly, you have to provide a W-2 to any person who was an employee in the last year. Both forms must be postmarked by January 31. Once those are done, you have to file "summary" forms (Form 1096 for independent contractors, Form W-3 for employees) with the IRS by February 28.
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2. How do I determine if an employee is exempt or non-exempt?
Every employee must be classified as either non-exempt or exempt in order to comply with Federal law.
Exempt employees are paid a salary and may not have to be paid overtime or minimum wage.
Non-exempt employees must be paid a minimum wage and one and one-half times their hourly wage for overtime work. Overtime is considered any hours worked more than 40 hours in a week. These employees are also subject to the regulations concerning child labor and equal pay laws.
An employee who is paid hourly is automatically considered non-exempt.
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3. What are the 2008 IRS limits for Social Security and Medicare tax?
For those employed by another, the 2008 Social Security Rate is 6.2% on your first $102,000 in wages.
For those who are self-employed, the rate is 12.4% on the first $102,000 of your net profit.
The Medicare Rate for those employed by another is 1.45% on all your wages.
The Rate for the self-employed is 2.9% on all net profit from your business or work.
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4. What are the 2008 IRS limits for mileage reimbursement?
For 2008, the Internal Revenue Service raised mileage reimbursement rates to $0.505 per mile.
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5. What is the difference between an employee and an independent contractor?
Whether a person is an independent contractor or an employee generally depends on the amount of control exercised by the employer over the work being done. Dictating how a job is done or the actions of the worker may establish an employer-employee relationship.
Independent contractor
- Operates under a business name
- Has his or her own employees
- Maintains a separate business checking account
- Advertises his or her business' services
- Invoices you for work done
- Has more than one client
- Has their own tools and sets their own hours
- Keeps their own business records
Employee
- Performs duties dictated or controlled by others
- Is given training for work to be done
- Works for only one employer
For most small businesses, independent contractors should not be considered as substitutes for employees. Government agencies generally find that people in the work force are legally employed for tax purposes and the cost of being wrong, remitting unpaid payroll taxes, interest and penalties are very high.
(Information courtesy of http://www.sba.gov/)
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