Can you refuse to fill in a W9?

Factual Questions
1

So this happened to someone I know…

They were hired at a startup, as a permanent employee. Startups being startups (and this being a pretty disorganized one even by standup standards) the founder was not organized enough to have a payroll system running before they started, so their first couple of pay periods were paid directly from the founders personal account with no withholding etc. At the time they asked the founder if they should be paying estimated tax on them but never received an answer (I realized the IRS doesn’t care about this and it’s on them to pay the estimated taxes regardless)

From day one they were absolutely a permanent employee, there was never any discussion of contracting or contract-to-hire. This was purely about the founder not having his sh-t together and sorting out a payroll system before they hired someone. After those couple of pay periods they did sort out a payroll system and they were paid via a regular paycheck with withholding etc.

About a year later they were laid off in a particularly crappy manner. At the start of the year they were sent a W9 to fill in for those pay periods they were paid directly without withholding.

If they were feeling vindictive could they refuse to fill in the W9 and say “no I was never a contractor, I was a permanent employee”. Would that have any effect on the company at all or just screw up their own taxes?

Note this is purely hypothetical, in reality they did the sensible thing: cursed them out under their breath, sent the W9, paid the (now late) estimated taxes and moved on with thier life.

In FQ as looking for the factual answer on the result of refusing to fill in a W9 not opinions on who is at fault.

2

It depends on exactly the kind of work they were doing, but in most cases, the IRS would consider them to be a W-2 employee from the beginning, and the employer was responsible for proper withholdings.

The company was legally in the wrong, and should be held accountable.

That said, the employees do still owe the money that should have been withheld for income taxes, though they should only be responsible for their half of Social Security and Medicare, which they would be responsible for all of it they are actually contractors.

It’s not a matter of feeling vindictive, they legally should have refused to fill out the w-9 and contacted the IRS about the withholdings they owe. There was nothing sensible about going along with the ex-employer’s scam. The only one to get into legal trouble would be their ex-employer, and by going along with it, they not only had to pay penalties on paying late, they also ended up paying the part of Social Security and Medicare that was the employer’s obligation.They would get into no legal trouble for this, only their ex-employer. In fact, there’s a chance that they may receive a reward for whistleblowing.

If they were still employed with the company, I could see keeping your head down and going along with it to keep their jobs. But as they were laid off, and apparently under “crappy” conditions, they absolutely should have turned the employer in to the IRS.

They still can, BTW. And as long as they do so within 5 years, they should be able to amend their return and convert the w-9 income into w-2, and save themselves the payroll taxes that should have been paid by the employer.

Disclaimer, I am not an accountant, but I do run a small business in an industry that is notorious for misclassifying employees as contractors, so I have a fair amount of exposure to this exact situation.

3

That’s not sensible. That’s fraudulent.

4

Meh still sensible IMO even given the information above from @k9bfriender (thanks BTW that’s all news to me). We are talking a small amount of cash here, it’s more an inconvenience rather than a genuine financial hardship.

It’s a small industry, the founder is a pretty influential figure in that industry, and they are actively applying for jobs using him as a reference.

So to me just taking this as bullshit to be put up with is the best option. Mind you, I could totally see someone choosing not to put up with it. And definitely wouldn’t just take the hit if the amount was greater.

5

That does change things a little, in that they still do need to give deference to this person to avoid being blacklisted in a small and connected industry.

However, if they are feeling vindictive, they can still drop a dime on him. They can report it anonymously, either to the IRS or to their state’s labor department. They won’t get much out of it other than the satisfaction of seeing this person in legal trouble, but that may be enough motivation there.

Personally, I really hate employers who abuse their employees and break labor laws. It makes the rest of us look bad as a group.

6

100 times, this.

Not to mention every time I see a small business owner saying they “understand” why other small business owners do shady stuff, I wonder if they would be so nonchalant if their competitors were doing that and getting a leg up that way.

7

I understand why. They are greedy, lazy and unethical.

But, since this is FQ, I will add more factual information to the OP about the difference between w-9 contractors and w-2 employees.

I run a dog grooming salon. My employees are w-2 employees, I tell them what days they will work, when to come in, what dogs they will groom, how they will groom them, I provide the equipment they use, and I trained them. I am responsible for withholding taxes and paying payroll taxes on their wages, including unemployment and worker’s comp insurance. There are labor laws that I have to follow.

If a groomer came to me, and they asked to use my facility to bring their own clients in exchange for a cut of their sales, they would be a w-9 contractor. I have no responsibility for their tax situation, unemployment, worker’s comp, or labor.

Many places want to have it both ways, employees that are under the direct control of the owner or management, but no responsibility for taxes and labor laws.

Fortunately, this is a practice that is being cracked down on quite a bit these days. A state department of labor would be very interested in hearing about such abuses. Not only is this an abuse of the employee, but it also results in a loss of tax revenue to the state in unemployment insurance taxes.

8

“Understanding” does not equal “condoning.”

9

So if my cleaning lady texts me to say what day she’ll come this week, and brings her own equipment (vacuum cleaner, buckets) and tells me what cleaning supplies to provide, she’s a contractor, right?

10

Yes, and you do have a limited control over her schedule, as making an appointment wouldn’t count as employing her.

And you could work a deal where they use your equipment, and you obviously have control over the quality and nature of their work while they are in your home. In many ways, you could treat them as an employee while they are working for you, while they would still be a contractor.

The way they would be considered your employee is if they did a substantial amount of their work exclusively for you. If you have a palatial estate with a full time housekeeper, it’s going to be a bit harder to call them a contractor, though where the line between the two extremes is is a bit blurry.