October 28, 2024 • 18 mins
We all pay someone to do work for us at some point or another. But did you know that how you classify those funds paid (code and book that payment accounting wise), can determine if you think they are a 1099 worker or a W-2 employee?
This week on Your Landlord Resource we are discussing the two rules that the Federal government and potentially your state government use to determine the difference between the two.
It’s a short episode that’s packed with a lot of good info to keep your business out of trouble in case you are ever audited…and we are seeing a lot of people we know go through this right now and its NO FUN!
LINKS
👉 Episode 5: The Advantages of Employing Your Children in Your Business
👉 US Department of Labor: Myths About Classifications of Employees as Independent Contractors
👉 Course Waitlist: From Marketing to Move In, Place Your Ideal Tenant
Connect with Us:
🌎 Visit our website
📧 Subscribe to our newsletter.
👆Click HERE for our FREE Landlord Forms and Doc’s
🤳Text Us: 650-489-4447. We love questions and love letters!
📩Email us at: Stacie@YourLandlordResource.com, Kevin@YourLandlordResource.com
✔️Course Waitlist: From Marketing to Move In, Place Your Ideal Tenant
📱 Follow us on Instagram, Facebook, & join our private Facebook group
🎧 Listen & Subscribe on Apple Podcasts, Spotify, or your favorite podcast app
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Stacie (00:00):
And the gist of it is if you have ever used the 1099
(00:04):
employee, you need to stopsaying that.
Here's some simple backgroundinformation on each of those.
So contractors get 1099s,employees get W2s.
And where this all may seemobvious, you would be surprised
at how many small businessowners either pay someone direct
for their services or pay themcash under the table, and then
(00:27):
refer to them as their employee.
And it's a total contradiction.
The IRS is really cracking downon this now and should you get
audited and not have providedthem with a 1099 by January 31st
each year following the yearthey worked for you, then you
could be forced to treat them asan employee.
(00:49):
Welcome to your landlordresource podcast many moons ago.
When I started as a landlord, Iwas as green as it gets.
I may have had my real estatelicense, but I lack confidence
in the hands on experienceneeded when it came to dealing
with tenants, leases,maintenance, and bookkeeping.
After many failed attempts, fastforward to today.
Kevin and I have doubled ourdoors and created an organized,
(01:12):
professionally operated rentalproperty business.
Want to go from overwhelmed toconfident?
If you're an ambitious landlordor maybe one in the making, join
us as we provide strategies andteach actionable steps to help
you reach your goals and thelifestyle you desire.
All while building a streamlinedand profitable rental property
business.
(01:32):
This is your landlord resourcepodcast.
Hello there landlords and thank you for tuning in to
the Your Landlord Resourcepodcast.
I'm your host Stacie Casella,and I'm here today with my co
host and my hubby Kevin Kilroy.
Kevin (01:51):
I like when you call me that.
Hey there everyone and thanksfor listening today.
So this week we're doing a bitof a shorty episode and I know
we've been doing a few of thoselately, but it's because we're
working hard on a few otherthings.
And one of them is finding ournext rental property to
purchase.
Which we're hoping to do prettysoon.
(02:13):
We had to get our taxescompleted last month so that we
could have up to date taxreturns for, you know, lending
purposes.
Still not sure if we're gonna gothe traditional route or try to
get a little creative by findingsomeone who's willing to extend
seller financing to us.
That would, something new to us,so we have to kind of look into
that also.
Stacie (02:32):
Yep.
Kevin (02:33):
And, you know, we like the stability and reliability of
a traditional loan, just not thecost, I guess, like everybody
else.
So we will see what happens withthat.
And the other thing we'reworking on is our upcoming
course, which is going to becalled From Marketing to Move
In, A Comprehensive Guide toPlacing Your Ideal Tenant.
(02:53):
And it's still a work inprogress, but just know that
Stacie is the queen of detailsand is working to create the
course that is easy to getthrough, but has all the
information you need to makedecisions about how to find that
new tenant.
And it will cover subjects suchas your acceptance criteria,
(03:14):
marketing your vacancy toattract the best tenants, the
process of pre screening, unitshowings, and accepting
applications.
Vetting the applicants, so thatwould be credit and background
checks, accepting and denyingapplications.
A lease and addendum blueprint,and onboarding your new tenant,
(03:35):
and the move in walkthrough.
We're also working to create PDFworksheets to help you with each
process as well.
So there will be at least sixmodules, and then several
lessons within each of those.
Again, we're making it ascomprehensive as possible, so
that you can start working onfinding your new, very qualified
(03:57):
tenant as soon as possible.
If you'd like to be on the waitlist for this course and
potentially be part of our betagroup, there will be a link in
the show notes to sign up.
Stacie (04:08):
Yeah, and let me clarify something.
There is no obligation.
If you think you might beinterested, go ahead and sign
up.
And what we mean by beta groupis that we're going to be
offering the course at adiscounted price for you to
purchase and in return, we'regoing to ask you to somehow
inform us of your thoughts onthe course.
(04:28):
That could be a survey overemail or maybe a 15 minute zoom
call.
But the basic premise behind itis that you go through the
course and then you let us knowwhere we need to improve it.
Okay.
Now that that's all done, let'sget into the subject of today's
podcast.
And that is understanding thedifference between a 1099
contract worker and employee.
(04:51):
And the gist of it is if youhave ever used the 1099
employee, you need to stopsaying that.
Here's some simple backgroundinformation on each of those.
So contractors get 1099s,employees get W2s.
And where this all may seemobvious, you would be surprised
(05:11):
at how many small businessowners either pay someone direct
for their services or pay themcash under the table, and then
refer to them as their employee.
And it's a total contradiction.
The IRS is really cracking downon this now and should you get
audited and not have providedthem with a 1099 by January 31st
each year following the yearthey worked for you, then you
(05:33):
could be forced to treat them asan employee.
Kevin (05:37):
So let me give you some examples of where you might be
hiring a contract worker orsomeone who will work for you
either for a short term periodof time or for a specific preset
time.
And it's all in the name.
Your contractor.
Specifically, a generalcontractor who does work for you
either in a project by projectbasis, or on certain days of the
(05:59):
week.
You know, like maintenance workaround your rental properties.
Maybe you have a handyman whoyou call every time you get a
maintenance request or need someheavy landscaping done or to
paint a unit during a vacancy.
Another example could be usingyour spouse, your child, or a
relative to help you out withoffice work, snow removal, or
(06:20):
you know, something likelandscaping every other week.
Maybe they handle calls formaintenance requests and then
coordinate the handyman to meetwith the tenant.
Maybe they do your bookkeeping.
Now, family members can work foryou for free, in exchange for
health benefits and such.
But, it's a very thin line andyou need to be careful about
that.
(06:40):
You can pay your children whoare under 18 to work for you in
most circumstances, but againthere are limitations.
We did a podcast called TheAdvantages of Employing Your
Children in Your Business.
I believe it's episode five andyou should check it out because
we discussed paying familymembers and the tax advantages
you can benefit from.
(07:01):
Of course, as always, we'll linkit in the show notes for you.
But the point is if you need tohire someone temporarily to help
pick up the slack, you can but,you need to be careful about how
you designate them as part ofyour rental property business.
Stacie (07:16):
So about 30 states are now using what is termed the ABC
test, which is a rule thatspecifies when someone can be
considered a contract worker.
A means that the worker must befree from control and direction
from the hirer.
This means that you give them ajob and they work to complete it
on their own schedule, not onethat you set for them.
(07:39):
They also have control over howthe work is done.
B means that the worker mustperform work that is outside the
usual course of the hiringentity's business.
So for landlords, there areabsolutely gray areas here.
What is the job of a landlord?
To provide housing for anotherwho pays for the right to live
(08:01):
in a property that the landlordowns.
Does that mean that the landlordhas to know how to market their
property, or could they hiresomeone to handle that for them?
Do they have to know how toplace a tenant or can they hire
a Realtor or a property managerto do it for them?
Do they have to know how to dorepairs and maintenance or can
they hire someone to do all ofthat for them?
(08:23):
All those things I justmentioned are not outside the
usual course of business for arental property owner.
Kevin (08:29):
Well, I think part C will clarify that for them.
Because part C requires that theperson you hire has their own
business doing what you'rehiring them for.
Your contractor should beworking on other people's
projects, not just yours.
Same with your landscaper, parttime bookkeeper, painter, etc.
Sounds easy enough, right?
(08:50):
Well, it should be.
But, if you pay someone onepenny more than$600 in a
calendar year, you have to givethem a 1099 for their taxes.
Per the IRS, you are notrequired to give out a 1099 for
any work done that is under$600.
And let me tell you, people aregetting audited left and right.
(09:11):
We have heard stories of othersgetting fined for not providing
a 1099 for a job that was lessthan say$1000.
Of course, the state ofCalifornia is very strict about
this.
And I don't want to get allpolitical, but Democrats have
been trying to make the ABC rulea federal law for many years
now.
Many states use the ABC rule,but some only use A and C.
(09:36):
But there's also states, andthey are Arizona, New York,
Alabama, Florida, Texas, Iowa,North and South Dakota, North
and South Carolina, Mississippi,Missouri, Michigan, Minnesota,
and Kentucky do not.
They use what is called theCommon Law Rule in which a
(09:57):
business only has to determinewhether or not they have the
right to control what the workerdoes and how they perform their
job.
So for those states who maybeturn their heads to defining an
employee versus a contractworker, that might be changing
at some point.
Look, the bottom line is that a1099 contract worker is not an
(10:18):
employee, but a self employedworker or independent
contractor.
Whether a worker is consideredan employee or an independent
contractor depends on therelationship between the worker
and the organization and the lawthat applies.
California Labor Code 226.
8 prohibits employers fromknowingly misclassifying
(10:39):
employees as independentcontractors and each violation
carries a civil penalty.
Stacie (10:45):
Okay, so you often hear us talk about our contractor
Jim.
And Jim is paid by the hour.
Does pretty much all themaintenance and repairs for our
Sacramento property.
And when we owned the singlefamily property rental in Chico
he worked there as well.
He also does work at ourpersonal home as well as our
vacation homes for our families.
(11:07):
I mean, he just finishedreplacing a deck at one property
and he did a beautiful job.
So do we keep Jim busy?
100% we do.
Does Jim use his own tools andhave the right to take on other
jobs if he wants to?
Yes, he does.
As a matter of fact, we had towait on some work that we needed
done while he did a bunch ofmaintenance and code compliance
(11:28):
work for our neighbors whobought a rental in Sacramento
recently.
And hey, neighbors, if you'relistening, make sure that your
CPA sends him a 1099 for allthat work.
But the bottom line is that wedo not pay him a wage or a
salary.
We pay him an agreement for whatthe job costs.
We do not need to withhold taxesor offer him benefits because he
(11:51):
has his own business doingconstruction work for other
people and businesses.
And what's important to know isthe law that applies to your
state.
California laws are stricterthan federal, so we have to
follow California law.
Kevin (12:06):
And real quick, let me tell you all about the federal
and Department of Labor rules.
So, the IRS basically goes bythe common law, which as we
stated before, focuses oncontrol of work being done.
Now, the Department of Laboruses an economic realities test
to assess whether a worker is anemployee or an independent
(12:26):
contractor.
There are two basicconsiderations of whether a
worker is economically dependenton an employer or in a business
for themselves.
The nature and degree of theworker's control over the work,
and their opportunity for profitor loss.
So, for those states who wementioned that do not follow the
ABC rule, these are theparameters the IRS and
(12:49):
Department of Labor will follow.
Now, if you classify someone whois actually doing duties as an
employee as a 1099 worker, youcould be liable for back
employment taxes as well aspenalties like$50 for each W2
that you didn't file, a penaltyof 3 percent of employee wages
(13:09):
plus 40 percent of FICA taxesthat weren't withheld, and a
100% of the matching FICA taxesyou're responsible for.
A penalty of half a percent ofthe unpaid tax liability per
month, up to 25 percent of thetotal tax liability.
In addition to those penaltiesfrom the IRS, under the FLSA,
(13:31):
you may be assessed penaltiesfor unpaid overtime or minimum
wage violations.
Stacie (13:37):
Yeah, I don't know about you guys, but my head's kind of
spinning right now with all thisinformation.
Kevin (13:41):
Yeah, yeah, me too.
And I'm the one that looked upall this stuff.
Stacie (13:46):
Alright, you guys, the bottom line is, if you have
someone working for you who youcontrol where, when, and how
much they make, you have anemployee who you need to pay
taxes for and give a W 2 forthem to claim that income on
their taxes.
If you have someone who doeswork for you, who gives you an
invoice every time the newproject is finished, and they
(14:08):
have earned more than$600 youhave a contract worker and need
to give them a 1099 to claim asincome on their taxes.
Okay, so to confuse you somemore, someone can be an employee
of yours and also be a contractworker.
So here's some examples.
If you have an administrativeemployee, like someone who
(14:29):
processes your paperwork,answers a phone and does your
weekly bookkeeping, but alsodoes janitorial services with
her spouse, you can hire them toclean your rental property
during turnovers.
If you have a handyman who worksfor you as an employee, but they
also own a landscaping company,you can hire them to do regular
landscape maintenance or trimtrees once a year, or clean the
(14:50):
yard and plant new flowers eachspring.
Kevin (14:54):
Yeah, I can see that admin one where they clean
vacancies popping up for shortermidterm rentals too.
Because a lot of people hiremanagers to handle just those
and then run the long termrentals themselves.
And often those managers are thejack of all trades, meaning they
place the tenants, they dealwith maintenance issues, clean
(15:14):
the place, et cetera.
if you have many short termrentals that only one person is
managing for you and a bulk oftheir time is spent on only your
units, that could cause someconfusion on the whole 1099
worker with their own managementcompany and if they could
qualify as a W2 employee.
Listen you guys, the big deal isthat we're seeing a lot of small
(15:36):
businesses around us get auditedand this is one thing that seems
to come up repeatedly.
The issue is the governmentwants to make sure that contract
workers who could be classifiedas employees are getting the
benefits they deserve.
Such things as minimum wage andovertime pay.
Workers compensation is anotherbig one.
(15:57):
And, obviously, medicalbenefits, sick pay, and family
leave.
We have an article put out bythe Department of Labor that we
will link in our show notes.
It breaks down the myths aboutclassification and how they
would determine if a contractworker were indeed an employee.
And, there were a couple inthere that caught our attention.
Not necessarily pertaining toour rental property business,
(16:19):
but some other small businessesthat we own.
Stacie (16:23):
All right, you guys, we said this would be a short one.
This is just something that cameacross us and we thought you
should know more about it.
Because someday you might be ina position where you have to
worry about this stuff and wewant you all to be informed so
you can operate a professionaland organized rental property
business.
We hope you enjoyed this episodeand got at least one good tidbit
(16:45):
of information out of it.
If so, would you do us a favorand leave us a very kind review
of the podcast so that otherlandlords can find us and
appreciate us too?
If you want to hear more, followor subscribe to the podcast, so
each week the episodes aredownloaded right to your
favorite podcast platform.
(17:05):
And we'd love to stay in contactwith you.
If you have a question, or youwant to suggest a subject for
our podcast, you can text us at650 489 4447.
Or you can email us at StacieYourLandlordResource.
com.
That's Stacie with an I E orKevin at YourLandlordResource.
(17:28):
com.
We will link all of those in theshow notes as well.
And also in the show notes,you'll find links for all the
free downloads that we offer,ways to sign up for our free
weekly newsletter, and as wementioned at the beginning of
the show, the waitlist for ourupcoming course on placing your
ideal tenant.
There's also links for ourprivate Facebook group and
(17:50):
that's just for landlords.
And our social media accounts onInstagram, Facebook and YouTube
where we share very importantand detailed tips and tricks for
landlords, so you should checkthose out as well.
Think that's about it.
Thanks again.
And until next time, You've gotthis landlords.
And the gist of it is if you have ever used the 1099
(00:04):
employee, you need to stopsaying that.
Here's some simple backgroundinformation on each of those.
So contractors get 1099s,employees get W2s.
And where this all may seemobvious, you would be surprised
at how many small businessowners either pay someone direct
for their services or pay themcash under the table, and then
(00:27):
refer to them as their employee.
And it's a total contradiction.
The IRS is really cracking downon this now and should you get
audited and not have providedthem with a 1099 by January 31st
each year following the yearthey worked for you, then you
could be forced to treat them asan employee.
(00:49):
Welcome to your landlordresource podcast many moons ago.
When I started as a landlord, Iwas as green as it gets.
I may have had my real estatelicense, but I lack confidence
in the hands on experienceneeded when it came to dealing
with tenants, leases,maintenance, and bookkeeping.
After many failed attempts, fastforward to today.
Kevin and I have doubled ourdoors and created an organized,
(01:12):
professionally operated rentalproperty business.
Want to go from overwhelmed toconfident?
If you're an ambitious landlordor maybe one in the making, join
us as we provide strategies andteach actionable steps to help
you reach your goals and thelifestyle you desire.
All while building a streamlinedand profitable rental property
business.
(01:32):
This is your landlord resourcepodcast.
Hello there landlords and thank you for tuning in to
the Your Landlord Resourcepodcast.
I'm your host Stacie Casella,and I'm here today with my co
host and my hubby Kevin Kilroy.
Kevin (01:51):
I like when you call me that.
Hey there everyone and thanksfor listening today.
So this week we're doing a bitof a shorty episode and I know
we've been doing a few of thoselately, but it's because we're
working hard on a few otherthings.
And one of them is finding ournext rental property to
purchase.
Which we're hoping to do prettysoon.
(02:13):
We had to get our taxescompleted last month so that we
could have up to date taxreturns for, you know, lending
purposes.
Still not sure if we're gonna gothe traditional route or try to
get a little creative by findingsomeone who's willing to extend
seller financing to us.
That would, something new to us,so we have to kind of look into
that also.
Stacie (02:32):
Yep.
Kevin (02:33):
And, you know, we like the stability and reliability of
a traditional loan, just not thecost, I guess, like everybody
else.
So we will see what happens withthat.
And the other thing we'reworking on is our upcoming
course, which is going to becalled From Marketing to Move
In, A Comprehensive Guide toPlacing Your Ideal Tenant.
(02:53):
And it's still a work inprogress, but just know that
Stacie is the queen of detailsand is working to create the
course that is easy to getthrough, but has all the
information you need to makedecisions about how to find that
new tenant.
And it will cover subjects suchas your acceptance criteria,
(03:14):
marketing your vacancy toattract the best tenants, the
process of pre screening, unitshowings, and accepting
applications.
Vetting the applicants, so thatwould be credit and background
checks, accepting and denyingapplications.
A lease and addendum blueprint,and onboarding your new tenant,
(03:35):
and the move in walkthrough.
We're also working to create PDFworksheets to help you with each
process as well.
So there will be at least sixmodules, and then several
lessons within each of those.
Again, we're making it ascomprehensive as possible, so
that you can start working onfinding your new, very qualified
(03:57):
tenant as soon as possible.
If you'd like to be on the waitlist for this course and
potentially be part of our betagroup, there will be a link in
the show notes to sign up.
Stacie (04:08):
Yeah, and let me clarify something.
There is no obligation.
If you think you might beinterested, go ahead and sign
up.
And what we mean by beta groupis that we're going to be
offering the course at adiscounted price for you to
purchase and in return, we'regoing to ask you to somehow
inform us of your thoughts onthe course.
(04:28):
That could be a survey overemail or maybe a 15 minute zoom
call.
But the basic premise behind itis that you go through the
course and then you let us knowwhere we need to improve it.
Okay.
Now that that's all done, let'sget into the subject of today's
podcast.
And that is understanding thedifference between a 1099
contract worker and employee.
(04:51):
And the gist of it is if youhave ever used the 1099
employee, you need to stopsaying that.
Here's some simple backgroundinformation on each of those.
So contractors get 1099s,employees get W2s.
And where this all may seemobvious, you would be surprised
(05:11):
at how many small businessowners either pay someone direct
for their services or pay themcash under the table, and then
refer to them as their employee.
And it's a total contradiction.
The IRS is really cracking downon this now and should you get
audited and not have providedthem with a 1099 by January 31st
each year following the yearthey worked for you, then you
(05:33):
could be forced to treat them asan employee.
Kevin (05:37):
So let me give you some examples of where you might be
hiring a contract worker orsomeone who will work for you
either for a short term periodof time or for a specific preset
time.
And it's all in the name.
Your contractor.
Specifically, a generalcontractor who does work for you
either in a project by projectbasis, or on certain days of the
(05:59):
week.
You know, like maintenance workaround your rental properties.
Maybe you have a handyman whoyou call every time you get a
maintenance request or need someheavy landscaping done or to
paint a unit during a vacancy.
Another example could be usingyour spouse, your child, or a
relative to help you out withoffice work, snow removal, or
(06:20):
you know, something likelandscaping every other week.
Maybe they handle calls formaintenance requests and then
coordinate the handyman to meetwith the tenant.
Maybe they do your bookkeeping.
Now, family members can work foryou for free, in exchange for
health benefits and such.
But, it's a very thin line andyou need to be careful about
that.
(06:40):
You can pay your children whoare under 18 to work for you in
most circumstances, but againthere are limitations.
We did a podcast called TheAdvantages of Employing Your
Children in Your Business.
I believe it's episode five andyou should check it out because
we discussed paying familymembers and the tax advantages
you can benefit from.
(07:01):
Of course, as always, we'll linkit in the show notes for you.
But the point is if you need tohire someone temporarily to help
pick up the slack, you can but,you need to be careful about how
you designate them as part ofyour rental property business.
Stacie (07:16):
So about 30 states are now using what is termed the ABC
test, which is a rule thatspecifies when someone can be
considered a contract worker.
A means that the worker must befree from control and direction
from the hirer.
This means that you give them ajob and they work to complete it
on their own schedule, not onethat you set for them.
(07:39):
They also have control over howthe work is done.
B means that the worker mustperform work that is outside the
usual course of the hiringentity's business.
So for landlords, there areabsolutely gray areas here.
What is the job of a landlord?
To provide housing for anotherwho pays for the right to live
(08:01):
in a property that the landlordowns.
Does that mean that the landlordhas to know how to market their
property, or could they hiresomeone to handle that for them?
Do they have to know how toplace a tenant or can they hire
a Realtor or a property managerto do it for them?
Do they have to know how to dorepairs and maintenance or can
they hire someone to do all ofthat for them?
(08:23):
All those things I justmentioned are not outside the
usual course of business for arental property owner.
Kevin (08:29):
Well, I think part C will clarify that for them.
Because part C requires that theperson you hire has their own
business doing what you'rehiring them for.
Your contractor should beworking on other people's
projects, not just yours.
Same with your landscaper, parttime bookkeeper, painter, etc.
Sounds easy enough, right?
(08:50):
Well, it should be.
But, if you pay someone onepenny more than$600 in a
calendar year, you have to givethem a 1099 for their taxes.
Per the IRS, you are notrequired to give out a 1099 for
any work done that is under$600.
And let me tell you, people aregetting audited left and right.
(09:11):
We have heard stories of othersgetting fined for not providing
a 1099 for a job that was lessthan say$1000.
Of course, the state ofCalifornia is very strict about
this.
And I don't want to get allpolitical, but Democrats have
been trying to make the ABC rulea federal law for many years
now.
Many states use the ABC rule,but some only use A and C.
(09:36):
But there's also states, andthey are Arizona, New York,
Alabama, Florida, Texas, Iowa,North and South Dakota, North
and South Carolina, Mississippi,Missouri, Michigan, Minnesota,
and Kentucky do not.
They use what is called theCommon Law Rule in which a
(09:57):
business only has to determinewhether or not they have the
right to control what the workerdoes and how they perform their
job.
So for those states who maybeturn their heads to defining an
employee versus a contractworker, that might be changing
at some point.
Look, the bottom line is that a1099 contract worker is not an
(10:18):
employee, but a self employedworker or independent
contractor.
Whether a worker is consideredan employee or an independent
contractor depends on therelationship between the worker
and the organization and the lawthat applies.
California Labor Code 226.
8 prohibits employers fromknowingly misclassifying
(10:39):
employees as independentcontractors and each violation
carries a civil penalty.
Stacie (10:45):
Okay, so you often hear us talk about our contractor
Jim.
And Jim is paid by the hour.
Does pretty much all themaintenance and repairs for our
Sacramento property.
And when we owned the singlefamily property rental in Chico
he worked there as well.
He also does work at ourpersonal home as well as our
vacation homes for our families.
(11:07):
I mean, he just finishedreplacing a deck at one property
and he did a beautiful job.
So do we keep Jim busy?
100% we do.
Does Jim use his own tools andhave the right to take on other
jobs if he wants to?
Yes, he does.
As a matter of fact, we had towait on some work that we needed
done while he did a bunch ofmaintenance and code compliance
(11:28):
work for our neighbors whobought a rental in Sacramento
recently.
And hey, neighbors, if you'relistening, make sure that your
CPA sends him a 1099 for allthat work.
But the bottom line is that wedo not pay him a wage or a
salary.
We pay him an agreement for whatthe job costs.
We do not need to withhold taxesor offer him benefits because he
(11:51):
has his own business doingconstruction work for other
people and businesses.
And what's important to know isthe law that applies to your
state.
California laws are stricterthan federal, so we have to
follow California law.
Kevin (12:06):
And real quick, let me tell you all about the federal
and Department of Labor rules.
So, the IRS basically goes bythe common law, which as we
stated before, focuses oncontrol of work being done.
Now, the Department of Laboruses an economic realities test
to assess whether a worker is anemployee or an independent
(12:26):
contractor.
There are two basicconsiderations of whether a
worker is economically dependenton an employer or in a business
for themselves.
The nature and degree of theworker's control over the work,
and their opportunity for profitor loss.
So, for those states who wementioned that do not follow the
ABC rule, these are theparameters the IRS and
(12:49):
Department of Labor will follow.
Now, if you classify someone whois actually doing duties as an
employee as a 1099 worker, youcould be liable for back
employment taxes as well aspenalties like$50 for each W2
that you didn't file, a penaltyof 3 percent of employee wages
(13:09):
plus 40 percent of FICA taxesthat weren't withheld, and a
100% of the matching FICA taxesyou're responsible for.
A penalty of half a percent ofthe unpaid tax liability per
month, up to 25 percent of thetotal tax liability.
In addition to those penaltiesfrom the IRS, under the FLSA,
(13:31):
you may be assessed penaltiesfor unpaid overtime or minimum
wage violations.
Stacie (13:37):
Yeah, I don't know about you guys, but my head's kind of
spinning right now with all thisinformation.
Kevin (13:41):
Yeah, yeah, me too.
And I'm the one that looked upall this stuff.
Stacie (13:46):
Alright, you guys, the bottom line is, if you have
someone working for you who youcontrol where, when, and how
much they make, you have anemployee who you need to pay
taxes for and give a W 2 forthem to claim that income on
their taxes.
If you have someone who doeswork for you, who gives you an
invoice every time the newproject is finished, and they
(14:08):
have earned more than$600 youhave a contract worker and need
to give them a 1099 to claim asincome on their taxes.
Okay, so to confuse you somemore, someone can be an employee
of yours and also be a contractworker.
So here's some examples.
If you have an administrativeemployee, like someone who
(14:29):
processes your paperwork,answers a phone and does your
weekly bookkeeping, but alsodoes janitorial services with
her spouse, you can hire them toclean your rental property
during turnovers.
If you have a handyman who worksfor you as an employee, but they
also own a landscaping company,you can hire them to do regular
landscape maintenance or trimtrees once a year, or clean the
(14:50):
yard and plant new flowers eachspring.
Kevin (14:54):
Yeah, I can see that admin one where they clean
vacancies popping up for shortermidterm rentals too.
Because a lot of people hiremanagers to handle just those
and then run the long termrentals themselves.
And often those managers are thejack of all trades, meaning they
place the tenants, they dealwith maintenance issues, clean
(15:14):
the place, et cetera.
if you have many short termrentals that only one person is
managing for you and a bulk oftheir time is spent on only your
units, that could cause someconfusion on the whole 1099
worker with their own managementcompany and if they could
qualify as a W2 employee.
Listen you guys, the big deal isthat we're seeing a lot of small
(15:36):
businesses around us get auditedand this is one thing that seems
to come up repeatedly.
The issue is the governmentwants to make sure that contract
workers who could be classifiedas employees are getting the
benefits they deserve.
Such things as minimum wage andovertime pay.
Workers compensation is anotherbig one.
(15:57):
And, obviously, medicalbenefits, sick pay, and family
leave.
We have an article put out bythe Department of Labor that we
will link in our show notes.
It breaks down the myths aboutclassification and how they
would determine if a contractworker were indeed an employee.
And, there were a couple inthere that caught our attention.
Not necessarily pertaining toour rental property business,
(16:19):
but some other small businessesthat we own.
Stacie (16:23):
All right, you guys, we said this would be a short one.
This is just something that cameacross us and we thought you
should know more about it.
Because someday you might be ina position where you have to
worry about this stuff and wewant you all to be informed so
you can operate a professionaland organized rental property
business.
We hope you enjoyed this episodeand got at least one good tidbit
(16:45):
of information out of it.
If so, would you do us a favorand leave us a very kind review
of the podcast so that otherlandlords can find us and
appreciate us too?
If you want to hear more, followor subscribe to the podcast, so
each week the episodes aredownloaded right to your
favorite podcast platform.
(17:05):
And we'd love to stay in contactwith you.
If you have a question, or youwant to suggest a subject for
our podcast, you can text us at650 489 4447.
Or you can email us at StacieYourLandlordResource.
com.
That's Stacie with an I E orKevin at YourLandlordResource.
(17:28):
com.
We will link all of those in theshow notes as well.
And also in the show notes,you'll find links for all the
free downloads that we offer,ways to sign up for our free
weekly newsletter, and as wementioned at the beginning of
the show, the waitlist for ourupcoming course on placing your
ideal tenant.
There's also links for ourprivate Facebook group and
(17:50):
that's just for landlords.
And our social media accounts onInstagram, Facebook and YouTube
where we share very importantand detailed tips and tricks for
landlords, so you should checkthose out as well.
Think that's about it.
Thanks again.
And until next time, You've gotthis landlords.
Popular Podcasts
Are You A Charlotte?
In 1997, actress Kristin Davis’ life was forever changed when she took on the role of Charlotte York in Sex and the City. As we watched Carrie, Samantha, Miranda and Charlotte navigate relationships in NYC, the show helped push once unacceptable conversation topics out of the shadows and altered the narrative around women and sex. We all saw ourselves in them as they searched for fulfillment in life, sex and friendships. Now, Kristin Davis wants to connect with you, the fans, and share untold stories and all the behind the scenes. Together, with Kristin and special guests, what will begin with Sex and the City will evolve into talks about themes that are still so relevant today. "Are you a Charlotte?" is much more than just rewatching this beloved show, it brings the past and the present together as we talk with heart, humor and of course some optimism.
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com