The “we don’t pay him enough to bother” statement might be true. You do not have to file a W-2 or 1099, nor collect FICA, etc. for some low-paid employees.
But it’s really low – less than $600 total in the year. I’d be really surprised if you pay less than that for someone to take care of city property.
I used this as Treasurer when we hired people like a Judge or Announcer for a once-a-year horse show. That’s the sort of incidental ‘employee’ that it is intended for. It reduces the paperwork burden for small organizations like that, and reduces the IRS work in processing forms from so many such small organizations. (If that same ‘employee’ is hired by several other horse shows during the year, then they would have to report this income to the IRS and pay the appropriate taxes.)
t-bonham@scc.net, yep, he makes lots more than that. The treasurer brought the IRS employer guide to the meeting last night, and you’re right about the $600. We’ll be doing W-4’s for several people.
Now I need to find out if we should also have done I-9s.
Oh, geez - get a tax lawyer. It’s not just about doing it right this year - you’re town council is on the hook for prior years. Get some sound legal advice and get this straightened out.
Failing to withhold from an employee’s wages can subject the employer to criminal penalties (as in jail time). I’m not sure how this works when the employer is a municipality, and it sounds like you are whipping everyone into shape, but I thought I would just underscore the seriousness here.
I’ve gained a lot of respect for people who work hard to keep small towns functioning. Until I joined the council, I had no idea how much was involved – normal “work” as in maintaining the infrastructure (the mayor cleans clogged water mains), but other work, as in keeping on top of the rules and regs from higher up. It’s been an eye-opener.
Criminal penalties are unlikely unless there’s some motive that could be shown for tax fraud, but the dollar penalties can be pretty severe.
However, dollar penalties can add up quickly and could even be more than the original amount due. Failure to file a payroll return timely has penalty up to 25% of the balance due, with a 10% penalty for failure to deposit (if that was required) and additional penalties and interest on failures to pay. Willful failure to file a W-2 or 1099 can be $100 ($50 if its mere negligence). An additional punitive penalty of up to 100% of the tax due can also be assessed.
On the other hand, the IRS can be persuaded to be merciful if you approach them and make the effort to get caught up. Get a tax professional (a tax lawyer is probably not needed) and have them write a letter requesting abatement of penalties. I’ve had the IRS forgive as much as $2,500 in penalties for clients.
In addition to Pub 15, check with your state government. There are almost certainly filings that were due to them for unemployment, workman’s comp, etc. In my state (WA), the IRS is a LOT friendlier than the state is.
Sounds like you’re not even doing Social Security withholding for this guy, right? As another poster said, the threshold for doing that is pretty low.
From what others have said, he definitely sounds like he meets the requirements to be considered an employee (subject to FICA/Medicare), vs. an independent contractor. Not only would the town need to withhold his 7.65% in that case, they need to match that and pay the employer’s share (the total they have to remit is 15.3%).
Oh, and Federal and State unemployment are also mandatory, depending on the amounts involved.
The old Council folks were definitely treading a risky path with this.
(IANAA, but I did have a household employee for a number of years and yeah, we did it all above the table and I had to handle unemployment, state withholding, federal withholding, and W-2s).
It’s possible. I don’t know the history. It might be that at one point, the groundskeeper was an independent contractor, or that his earnings were under the threshold.
I know all the withholding is done correctly for the clerk and the treasurer. Those are the only permanent city positions, and they’re part-time.
I asked at the meeting if the city’s books and records had ever been audited. We were, about ten years ago, and we passed (whatever that means).
Thanks again, everyone, for the advice and input. We’re on a path to get things straightened out.
