Question about paying people.

[VBGOD]

Do you absolutely need either their social security number or EIN?

Thanks.

[OldJack]

Yes. If the individual is to be an employee you have to have their social security number for quarterly payroll forms and a W2 form at the end of the year.

Yes. If they are an independent contractor (other than a corp) you need their EIN or SS# if you pay them more than $600 in the year for a form 1099Misc that goes to them and the IRS.

No. If you want to pay foreign aliens and go to jail.

[VBGOD]

Originally Posted by OldJack

Yes. If the individual is to be an employee you have to have their social security number for quarterly payroll forms and a W2 form at the end of the year.

Yes. If they are an independent contractor (other than a corp) you need their EIN or SS# if you pay them more than $600 in the year for a form 1099Misc that goes to them and the IRS.

No. If you want to pay foreign aliens and go to jail.

Thank you. I plan on doing everything by the book.

I got one more (if you don't mind ). My company is in the middle of a big project. I'd like to pay myself. I would most likely be an employee for my company, but wouldn't I pay double taxes?

[OldJack]

It depends upon what entity is your company?

1) If your company is a sole propritorship you do not take pay as an employee because all net income is taxable already. You just take money out as much as you wish when you wish, its your money. There is no double tax as you don't take a salary.

2) If your company is a partnership (or LLC taxed as a partnership) you do not take pay as an employee because all net income is taxeable already. If your other partners agree that you should have a salary with them not, then your pay is just taking money out as "partners guaranteed payments" with no payroll tax withholdings. In either case you just take the money and call it a distribution. The pay is only reported as a distribution on the partnership tax return 1065 k-1 (no W2). There is no double tax as you pay tax on the net income for the year and not on what you take out.

3) If your company is a corporation, then you take a salary as an employee with payroll tax withholding and get a W2 at the end of the year. There is no double tax as the corp gets a deduction for the gross salary you take out. Double tax is when you don't take the salary and the corp pays a tax on the profit and you take the money out later in a form (dividends, capital gains, etc.) that is not deductible by the corp but taxable to you as an individual. In that case the corp has paid a tax and you pay a tax when you take it out, thus the double tax.

[VBGOD]

Originally Posted by OldJack

It depends upon what entity is your company?

1) If your company is a sole propritorship you do not take pay as an employee because all net income is taxable already. You just take money out as much as you wish when you wish, its your money. There is no double tax as you don't take a salary.

2) If your company is a partnership (or LLC taxed as a partnership) you do not take pay as an employee because all net income is taxeable already. If your other partners agree that you should have a salary with them not, then your pay is just taking money out as "partners guaranteed payments" with no payroll tax withholdings. In either case you just take the money and call it a distribution. The pay is only reported as a distribution on the partnership tax return 1065 k-1 (no W2). There is no double tax as you pay tax on the net income for the year and not on what you take out.

3) If your company is a corporation, then you take a salary as an employee with payroll tax withholding and get a W2 at the end of the year. There is no double tax as the corp gets a deduction for the gross salary you take out. Double tax is when you don't take the salary and the corp pays a tax on the profit and you take the money out later in a form (dividends, capital gains, etc.) that is not deductible by the corp but taxable to you as an individual. In that case the corp has paid a tax and you pay a tax when you take it out, thus the double tax.

Wow, thank you.

I am the sole proprietorship of my company, but it is a corporation. My company's name has an Inc at the end.

So my company would get a deduction for the payroll expense, and I would pay the taxes (individually). Thus, no double taxation.

[OldJack]

If your company has the name Inc then you are a corporation and you are an officer, shareholder, and owner (but not a proprietorship).

If you filed a form 2553 with the IRS than you are a Subchapter "S" corporation, otherwise you are a "C" corporation. Those are sections of the tax law concerning how a corp is taxed.

If you are a C-corp then your salary is a deduction for the corp on the corp 1120 tax return and any profit left over the corp pays the tax. You get a W2 and that is all that is taxed on your 1040. If you take the left over money out later in a form that does not give the corp a deduction then you would again have to pay a tax on your 1040 and that would result in a double tax as the corp had already paid tax on the same money.

If you are a S-corp (you probably are) your salary is deducted the same as a C-corp on the corp 1120s tax return but the left over profits are passed through to you and are taxed on your 1040 Sch-E. The profits are taxed regardless of when you draw the money out so when you do take the money out it is not taxed again. Therefore there is no double tax as an S-corp does not pay any tax (with an exception you probably don't have to be concerned about) because you are taxed on your 1040 as tho the corp did not exist.

no big deal.