What type of workers do you have on your farm? Are they employees or contractor laborers? Do you need W2s or 1099s for these people?
The IRS requires business owners to file a W2 and pay employment taxes for temporary, part-time or full-time workers. But, the IRS also allows businesses to hire 1099 contractors, workers for whom a business does not pay employment taxes.
Before changing a worker’s status to save on how much taxes you pay, you must understand the differences.
“The IRS gets irritated when businesses hire 1099 contractors instead of employees to avoid paying employment taxes,” explained Deb Best of Deb Best Practices. “The government can and does impose fines if workers are not reported appropriately.”
But there are legitimate situations when it makes sense to hire a 1099 contractor rather than an employee. The key is understanding the difference between the two.
The IRS makes the distinction by behavioral control. When a business has the “right to direct and control the worker” in terms of scheduling and how a task is to be completed, then the worker is a W2 employee.
The “right to direct and control the worker” means that you dictate when and where to perform the work, which tools to use and in what sequence to do the work. Additionally, if you provide detailed instructions or training on how to perform the job, the individual is considered an employee.
Stable hands cleaning stalls and/or caring for the horses are likely W2 employees. Barn and office managers also likely fall into this category.
Potentially trainers, instructors or exercise riders may be 1099 candidates. This is determined by the amount of autonomy they are granted for scheduling riders or lessons and making decisions in regard to training, teaching and equipment used.
Before deciding which classification fits your operation, consult an employment attorney or your CPA. This will save you headaches and possibly fines if you treat an employee as the wrong type under IRS law.
Information is also available on the IRS website at www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3Fnandwww.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Behavioral-Control.