How does one deduct taxes from a one-time payment?
February 3, 2006 2:25 PM   Subscribe

One-time payment for ten employees - withholding taxes?

A friend of mine was contracted by a company to hire and supervise about ten persons for purposes of several trade show promotions. The employees were all paid by the hour. The number of hours worked varied by the employee, but generally remained under 15 per person. This was a kind of a one-time seasonal event.

My friend has just been reimbursed by the company that hired her, and now she needs to pay the employees. She is under the assumption that she will need to withhold taxes. Really, I have two questions:

1. None of the employees made over $500, and it is unlikely that they will be doing any additional work for my friend this year. Does she still have to withhold federal and state taxes from whatever she pays them?

2. If yes to the above question, what is the best way of calculating the proper withholdings? I understand that QuickBooks has an annual service which does this automatically, but it doesn't make much sense to sign up for a one-year plan when this only needs to be done once.
posted by Pontius Pilate to Work & Money (6 answers total)
 
This isn't employee territory, it's contract work -- she's only liable for witholding taxes for employees. For this she just needs to pay them and make sure they get 1099s at the end of the year.
posted by camcgee at 2:52 PM on February 3, 2006


I'm not the IRS, etc. but...

The easy way to do this is to report this with a 1099 MISC She can pay the full wages without any withholding IF she has a form W-9 with a valid tax id number for the employee so she can report the earnings to the IRS at the end of the year. If she doesn't have a valid tax ID then she is required to do the withholding herself.

Since none of them made over $500, and you don't have to report until you hit $600, she should just make sure she's got valid tax ids for the workers (in case she hires them again this year and they go over $600 in wages). At the end of the year she can report the income to the IRS and send the employees a 1099-MISC of the wages reported. The forms are available at office supply stores.

I don't know how to calculate withholding, but I think the requirements are specified on the form W-9.
posted by stefanie at 2:57 PM on February 3, 2006


Here's the W-9 form. Your friend is going to need a taxpayer identification number for her 1099-MISCs only if they get paid more than $600 for the calendar year. Don't call them employees--all sorts of nasty legal implications for that.

In the case of employees, the IRS website has the data for calculating withholding manually on a W-2.
posted by commander_cool at 5:52 PM on February 3, 2006


Response by poster: I should have probably stated this in the original question. That is the complication - they are actually employees; one of the conditions for getting the job was providing workers' compensation insurance for all ten of these people, and, consequently, they were all deemed to be employees rather than independent contractors.
posted by Pontius Pilate at 7:33 PM on February 3, 2006


Oh. Well, withholding is needed, then, and she'll need to file W-2 and W-3 forms. Hopefully she thought ahead to get the employees to fill out W-4 forms and comply with the immigration laws for hiring. Huge pain in the butt, including all sorts of taxes your friend may not have budgeted for. Here's the SSA's employer's guide.
posted by commander_cool at 8:39 PM on February 3, 2006


Response by poster: Thanks for responding, all. Much appreciated.
posted by Pontius Pilate at 5:19 PM on February 5, 2006


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