Employer's responsibility for tax withholding

Factual Questions
1

At our city council meeting last month, somebody brought up the fact that we’re not withholding taxes for the person we hired to take care of city property. The treasurer said she’d asked the former treasurer about it, and the former treasurer said “Don’t worry about it – we don’t pay him enough to bother.” (It’s a part-time/paid hourly job.)

That sounded kinda wonky to me so I googled when I got home and found a dissenting opinion. I sent it off to the treasurer. We’re meeting again tonight and the treasurer asked me to bring the info with me. But now I can’t find it!

He’s not an independent contractor, as far as I can tell. He uses city equipment and works at our direction. And even if he doesn’t earn enough to pay income taxes, we should still have him fill out a W-4 and send him a W-2, etc.

Can someone direct me to an authoritative site that shows what our responsibilities are? I imagine the council will still want to ask our lawyer about it, but unless I can show them that there’s a question about whether we’ve been doing it right, they won’t want to bother the lawyer with it.

2

Section 5 from IRS Circular E, Employer’s Tax Guide:

Wages and Other Compensation
Wages subject to federal employment taxes generally include all pay that you give to an employee for services performed. The pay may be in cash or in other forms. It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. It does not matter how you measure or make the payments.

(Bolding added for emphasis)

3

Thanks! This should take care of it. Looks like we’ve been doing it wrong forever.

4

Wait. This isn’t necessarily true. On the W4 there is a line that states

"I claim exception from withholding and I certify that I meet both of the following conditions…

Last year I had a right to a refund of all federal income tax and
This year I expect a refund of all federal income tax."

If he isn’t paid that much and has no other income then the employee can waive federal withholding.

5

The **employee **can choose to waive withholding–that doesn’t necessarily mean that the employer can make that decision on the employee’s behalf.

For instance, what if the employee has several low-income jobs that together push the EE into federal tax territory?

6

There’s a difference between an employee who chooses to waive withholding and an employer not doing it.

The employee could have other jobs too and this adds up, since the income tax is pay as you go, you can be dinged for not withholding enough

7

I was assuming the employee did request it hence the answer that they don’t pay him enough. I guess it should be checked to see if a W4 was completed.

8

Foxy40, if you re-read the OP, it definitely sounds like: there was not a W4 completed; a W2 was not sent; and this was at the employer’s discretion and not the employee’s request.

9

Maybe I missed it, but are you also not withholding FICA? If so, you may be putting that person in serious jeopardy of being delinquent in quarterly payments.

10

Nope, not withholding FICA either.

And, yeah, we’re not concerned with what he’s doing about reporting income but rather with what our responsibilities are.

Thanks for everyone’s input! :slight_smile:

11

Then, IMHO, you need to make him an independent contractor. If he’s your employee, your responsibilities are, I’m pretty sure, to withhold FICA and make quarterly payments of those withholdings.

me <> lawyer
me <> accountant

12

I don’t think we can “make” someone an independent contractor, can we? He uses the city’s equipment to do his job, he doesn’t have a business license, and he doesn’t really work independently. We posted an announcement for the job, he applied and was hired. (He maintains the city parks and does some street cleanup.)

Seems from what I’ve read that it’d be easier (and correct) for us to start doing our job right and get him properly set up as an employee, instead of just cutting him a check every month.

13

I’m going to leave this open for now, despite the fact that it seeks legal advice. But I’ll make a few of the usual points:

  1. You get what you pay for. Nobody here can give you definitive advice on this matter, and you really ought to have the city attorney review it.

  2. Posters should try to refrain from offering legal analysis. It’s fine to link out to publicly available information, but guessing is counterproductive.

Gfactor
General Questions Moderator

14
15

Illegal Creek is near Eagle Creek, right? No one expects thing to be done right in Illegal Creek.

16

I assumed being public there were checks and balances to this sort of thing which is what led to my answer.

I must be naive. It never occurred to me that a check could be written to someone using tax dollars without an auditing policy in place.

17

Thanks. I really was just looking for a link to the info, not legal advice. I was all over the IRS site this a.m. and kept getting sent to a page with Social Security withholding info.

Dag Otto, yep, we’re dang close to there. :slight_smile:

18

We’re naive too. It’s kinda scary now, wondering what else the former treasurer (52 years of city service as treasurer, city clerk, council member) has done, or hasn’t done. No one questions her honesty, but she was a great one for saying “That’s how we’ve always done it.”

19

Speaking as someone who currently does work as an independent contractor, there are still reporting obligations for those people who hire me to do work as an independent. Are you sending him a 1099 at the end of the year?

I strongly recommend your city counsel seek not just legal advice but the services of a tax lawyer to get this straightened out. There could be some serious issues here regarding past obligations and you’ll want someone who can negotiate with the IRS on your behalf if that is the case.

Um… no, I’m not a lawyer and this is not legal advice, all other standard disclaimers apply.

20

Definitely. I’ll be taking the IRS info to the meeting tonight. The city treasurer and clerk are both new and they’re very conscientious about doing things right. I don’t think we’ll have any problem convincing the council that we need to look into this.

Obviously we need to start with current employees. It’ll be interesting to learn how far back we’ll have to go to get right.

Well, dealing with the IRS can’t be much worse than dealing with the DNR.