6 ms·

At least California is generous enough to require at least 25% of payroll. Most states, if you have even a single employee in that state you need to register as

by r3dey3 4y ago

At least California is generous enough to require at least 25% of payroll. Most states, if you have even a single employee in that state you need to register as a business in that state (and pay associated filing fees and taxes). This isn't really news. 15 minutes of reading about staring an LLC in Deleware and you'll find you have to register in the state you live as well - so it shouldn't be a shock you have to file in places you have employees. 1099 is definitely the way to go for as long as you can - people still get social security credit. IANAL, this isn't legal advice, blah blah blah

e40 4y ago
Words of advice, though, if the business is in CA don't hire contractors via 1099 unless the work really does fall under the legal definition of what a 1099 can be used for (in CA). If they appear to be an employee, in any way, then they should be an employee. The CA EDD loves auditing and assessing back taxes and fines. And all it takes is a disgruntled contractor to call the EDD.
- Enginerrrd 4y ago
  >And all it takes is a disgruntled contractor to call the EDD. Less than that! In the event of a random audit, they will aggressively try to reclassify 1099 contractors that have no interest in being employees and don't meet the definition in any way.
- aquark 4y ago
  Any idea how CA handles (small) foreign companies hiring contractors in CA? Assuming they did decide to quibble about the classification what can they actually do to an entity that has no legal existence in the US?
  - hnburnsy 4y ago
    They probably only go after those in the US as they can garnish bank accounts at banks that they can reach as they currently do to Arizona businesses they claimed were doing business in California... "Making matters worse, if California’s tax assessments are not paid voluntarily, California frequently further tramples on the sovereignty of other states by issuing orders to interstate banks, demanding that they transfer funds in Arizona-based accounts for back payment. Those seizure orders threaten the banks that, if they do not transfer the funds, California will take the taxes and penalties owed from the banks instead. Not surprisingly, the banks almost uniformly consent to California’s strong-arm tactics. Exhibit G in the filing provides an example where California demanded that Wells Fargo not only transfer the $800 tax, but also a $200 “demand penalty,” a $432 “late filing penalty,” a $79 “filing enforcement fee,” and $63.40 in interest, for a “Total Tax, Penalties, Interest and Fees” of $1574.40." https://www.azag.gov/press-release/arizona-attorney-generals-office-files-lawsuit-us-supreme-court-challenging https://www.azag.gov/press-release/arizona-attorney-generals...
  - e40 4y ago
    Pretty sure @hnburnsy is right. They're not going to spend the resources to track down non-US entities, I would bet a fair amount of money.
colechristensen 4y ago
Registering as a business in a state though is usually an activity that takes 15 minutes and around $100. If you are doing enough to have a few employees, paying an accountant type to do this for you is very cheap and quite easy.
- beej71 4y ago
  Last I looked years ago, it was $800 per year in California. (It's $100 in the state I live in now, though.)
  - colechristensen 4y ago
    Yeah most states will be more like $100, even $800 though... if we're on hacker news and probably talking about tech workers... it is still a tiny amount of overhead cost.
    - site-packages1 4y ago
      Doesn't the "overhead cost" entirely depend on the business size, scope, location, employees, etc.? $800 is a lot of overhead for many tech companies.
      - colechristensen 4y ago
        If you’re hiring a tech worker in California, $800 is likely a day or two of reasonable cost for that one employee. Even a minimum wage employee working full time will cost that much in a week or two.
    - s1artibartfast 4y ago
      It really depends. If you want to try out a small side biz venture or hot dog stand, $800 is a lot of overheard. I feel for people who are on the lower end of the income scale that that try to do basically anything is California's hostile business climate.
  - kxyvr 4y ago
LimaBearz 4y ago
I had to go through this process once. Large multi-national didn't wanna do the whole paying the state thing(thats reasonable) and I was the only employee moving to that state. They ended up classifying me as a "contractor" working under one of their existing agency relationships but aside from who signed my paycheck there was no distinction
andrewljohnson 4y ago
California has a really strict view of what a contractor is, so 1099s are not as feasible as they seem in CA: https://www.dir.ca.gov/dlse/faq_independentcontractor.htm#:~:text=AB%205%20requires%20the%20application,Commission%20(IWC)%20wage%20orders https://www.dir.ca.gov/dlse/faq_independentcontractor.htm#:~.... IANAL, but if you are building a software product, and you hire someone to do software development work on your core product, then CA may easily take the view that person is an employee because of the ABC test (as of September 2019).
- Animats 4y ago
  Yes. The ABC test is simple. Someone is an independent contractor only if: 1. You don't tell them what to do, you just negotiate an end product. 2. Your main business is something else. 3. They routinely have other clients. All three, or they're an employee. The plumber who unclogs your drains is an independent contractor. Someone who does the work of your business is an employee. It's that simple.
  - rhacker 4y ago
    Isn't a plumber just someone providing a service - not an independent contractor? Like if I did 20000K of work with that plumber, I'm not sending a 1099.
    - throwaway09223 4y ago
      Yes, but at scale and in a lawsuit, the court will look at the totality of the situation. Many companies hire through staffing companies, rather than hiring 1099s directly. But when the contracting company only provides a service to you, and their 1099s are only contracted to your offices, you may find that the employees of this other company are considered to be employees of your company instead. Courts can decide to pierce these abstractions. The most notable example is the Microsoft permatemp lawsuit: https://en.wikipedia.org/wiki/Permatemp https://en.wikipedia.org/wiki/Permatemp If your company has so much piping that the local plumber hires staff dedicated to you for years on end, then it's conceivable that a court would decide that the plumbing company's employees are actually your employees. Personally, I've always wondered whether government contractors could win a lawsuit to be considered government employees. The US government is by far the biggest "permatemp" employer and seems to itself regularly flout these kinds of laws.
hermitdev 4y ago
> 1099 is definitely the way to go for as long as you can - people still get social security credit. The "danger" with a 1099 isn't that you don't get social security credit, it's that there's no withholding, so the recipient has to pay all of the taxes after the fact (instead of getting a refund come tax time like most? many?). It shouldn't be a problem for someone used to this and plan/save accordingly, but it's easy for someone new to contracting to fall into a trap of "OMG, look at all this money!! I'm going to go buy something expensive..." and spend everything, without considering their tax liability down the road.
- yellow_lead 4y ago
  And they have to pay a self employment tax
- driverdan 4y ago
  > The "danger" with a 1099 isn't that you don't get social security credit What do you mean? You still pay in but you have to pay 100% yourself instead of having the company pay half.
  - Johnny555 4y ago
    Why was this post downvoted? That's my understanding too, the "self employment" tax replaces what the employer would have paid. Is this not the case?
    - orangepurple 4y ago
      It is the case. If you are being paid as 1099 you need to ask for more money because of this shift in tax burden.
      - Johnny555 4y ago
        Yeah, I assumed that was common knowledge, and is one of the reasons 1099 hourly pay is typically greater than W-2 hourly pay. (other reasons include that you don't typically get PTO, health insurance, retirement account, etc)
Enginerrrd 4y ago
Just FYI, the California EDD has some absolutely ridiculous ideas on what qualifies someone as an employee vs 1099 contractor that extend well beyond what the IRS considers, and frankly, well beyond their own written law in the event of an audit. They audit extensively and intrusively on that issue as well. It's absolutely absurd.
- chasil 4y ago
  Now is the time for anyone to get California in front of Clarence Thomas. "The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States." A sole owner of an Illinois business could be read in that text to have immunity from the California "minimum franchise tax." It would be helpful to see the Supreme Court remove California's abusive interstate taxation.
  - otterley 4y ago
    The Privileges and Immunities clause has only been interpreted once by the Supreme Court and only (so far) protects the right to interstate travel (on your own two feet, BTW). It has never been held to forbid interstate taxation, and in fact, the right to interstate taxation was recently expanded in South Dakota v. Wayfair, Inc. (2018) when the Court was already conservative-leaning. The plain text of the Constitution often does not mean what laypeople think it means.
    - AdrianB1 4y ago
      > The plain text of the Constitution often does not mean what laypeople think it means. "We the people" does not seem to be written for Ivy League lawyers to understand and translate to laypeople. A Constitution written in a way that only a small percent of people are "trained" or "authorized" to understand or apply is a big time failure. Just sayin'
      - PaulDavisThe1st 4y ago
        The problem is not the way the Constitution is written. It's a bunch of people who think that their understanding of, for example, "Privileges and Immunities" is obviously correct.
brimble 4y ago
> 1099 is definitely the way to go for as long as you can - people still get social security credit. Dirty secret of remote work is that lots of companies are abusing the 1099 system to make it happen. The workers definitely don't meet rules for being 1099, but tax compliance (not to mention sorting out benefits) across a whole bunch of states and even countries is crazy overhead, so the realistic options are to make everyone 1099, or to only hire from one state. ... then again, a bunch of bigcos abuse 1099 for non-remote employees all the time and have for years, so, not like this is unique to smaller all-remote or remote-friendly companies.

by r3dey3 4y ago

e40 4y ago

Words of advice, though, if the business is in CA don't hire contractors via 1099 unless the work really does fall under the legal definition of what a 1099 can be used for (in CA). If they appear to be an employee, in any way, then they should be an employee. The CA EDD loves auditing and assessing back taxes and fines. And all it takes is a disgruntled contractor to call the EDD.

Enginerrrd 4y ago
>And all it takes is a disgruntled contractor to call the EDD. Less than that! In the event of a random audit, they will aggressively try to reclassify 1099 contractors that have no interest in being employees and don't meet the definition in any way.
aquark 4y ago
Any idea how CA handles (small) foreign companies hiring contractors in CA? Assuming they did decide to quibble about the classification what can they actually do to an entity that has no legal existence in the US?
- hnburnsy 4y ago
  They probably only go after those in the US as they can garnish bank accounts at banks that they can reach as they currently do to Arizona businesses they claimed were doing business in California... "Making matters worse, if California’s tax assessments are not paid voluntarily, California frequently further tramples on the sovereignty of other states by issuing orders to interstate banks, demanding that they transfer funds in Arizona-based accounts for back payment. Those seizure orders threaten the banks that, if they do not transfer the funds, California will take the taxes and penalties owed from the banks instead. Not surprisingly, the banks almost uniformly consent to California’s strong-arm tactics. Exhibit G in the filing provides an example where California demanded that Wells Fargo not only transfer the $800 tax, but also a $200 “demand penalty,” a $432 “late filing penalty,” a $79 “filing enforcement fee,” and $63.40 in interest, for a “Total Tax, Penalties, Interest and Fees” of $1574.40." https://www.azag.gov/press-release/arizona-attorney-generals-office-files-lawsuit-us-supreme-court-challenging https://www.azag.gov/press-release/arizona-attorney-generals...
- e40 4y ago
  Pretty sure @hnburnsy is right. They're not going to spend the resources to track down non-US entities, I would bet a fair amount of money.

colechristensen 4y ago

Registering as a business in a state though is usually an activity that takes 15 minutes and around $100. If you are doing enough to have a few employees, paying an accountant type to do this for you is very cheap and quite easy.

beej71 4y ago
Last I looked years ago, it was $800 per year in California. (It's $100 in the state I live in now, though.)
- colechristensen 4y ago
  Yeah most states will be more like $100, even $800 though... if we're on hacker news and probably talking about tech workers... it is still a tiny amount of overhead cost.
  - site-packages1 4y ago
    Doesn't the "overhead cost" entirely depend on the business size, scope, location, employees, etc.? $800 is a lot of overhead for many tech companies.
    - colechristensen 4y ago
      If you’re hiring a tech worker in California, $800 is likely a day or two of reasonable cost for that one employee. Even a minimum wage employee working full time will cost that much in a week or two.
  - s1artibartfast 4y ago
    It really depends. If you want to try out a small side biz venture or hot dog stand, $800 is a lot of overheard. I feel for people who are on the lower end of the income scale that that try to do basically anything is California's hostile business climate.
- kxyvr 4y ago

LimaBearz 4y ago

I had to go through this process once. Large multi-national didn't wanna do the whole paying the state thing(thats reasonable) and I was the only employee moving to that state. They ended up classifying me as a "contractor" working under one of their existing agency relationships but aside from who signed my paycheck there was no distinction

andrewljohnson 4y ago

California has a really strict view of what a contractor is, so 1099s are not as feasible as they seem in CA: https://www.dir.ca.gov/dlse/faq_independentcontractor.htm#:~:text=AB%205%20requires%20the%20application,Commission%20(IWC)%20wage%20orders https://www.dir.ca.gov/dlse/faq_independentcontractor.htm#:~.... IANAL, but if you are building a software product, and you hire someone to do software development work on your core product, then CA may easily take the view that person is an employee because of the ABC test (as of September 2019).

Animats 4y ago
Yes. The ABC test is simple. Someone is an independent contractor only if: 1. You don't tell them what to do, you just negotiate an end product. 2. Your main business is something else. 3. They routinely have other clients. All three, or they're an employee. The plumber who unclogs your drains is an independent contractor. Someone who does the work of your business is an employee. It's that simple.
- rhacker 4y ago
  Isn't a plumber just someone providing a service - not an independent contractor? Like if I did 20000K of work with that plumber, I'm not sending a 1099.
  - throwaway09223 4y ago
    Yes, but at scale and in a lawsuit, the court will look at the totality of the situation. Many companies hire through staffing companies, rather than hiring 1099s directly. But when the contracting company only provides a service to you, and their 1099s are only contracted to your offices, you may find that the employees of this other company are considered to be employees of your company instead. Courts can decide to pierce these abstractions. The most notable example is the Microsoft permatemp lawsuit: https://en.wikipedia.org/wiki/Permatemp https://en.wikipedia.org/wiki/Permatemp If your company has so much piping that the local plumber hires staff dedicated to you for years on end, then it's conceivable that a court would decide that the plumbing company's employees are actually your employees. Personally, I've always wondered whether government contractors could win a lawsuit to be considered government employees. The US government is by far the biggest "permatemp" employer and seems to itself regularly flout these kinds of laws.

hermitdev 4y ago

> 1099 is definitely the way to go for as long as you can - people still get social security credit. The "danger" with a 1099 isn't that you don't get social security credit, it's that there's no withholding, so the recipient has to pay all of the taxes after the fact (instead of getting a refund come tax time like most? many?). It shouldn't be a problem for someone used to this and plan/save accordingly, but it's easy for someone new to contracting to fall into a trap of "OMG, look at all this money!! I'm going to go buy something expensive..." and spend everything, without considering their tax liability down the road.

yellow_lead 4y ago
And they have to pay a self employment tax
driverdan 4y ago
> The "danger" with a 1099 isn't that you don't get social security credit What do you mean? You still pay in but you have to pay 100% yourself instead of having the company pay half.
- Johnny555 4y ago
  Why was this post downvoted? That's my understanding too, the "self employment" tax replaces what the employer would have paid. Is this not the case?
  - orangepurple 4y ago
    It is the case. If you are being paid as 1099 you need to ask for more money because of this shift in tax burden.
    - Johnny555 4y ago
      Yeah, I assumed that was common knowledge, and is one of the reasons 1099 hourly pay is typically greater than W-2 hourly pay. (other reasons include that you don't typically get PTO, health insurance, retirement account, etc)

Enginerrrd 4y ago

Just FYI, the California EDD has some absolutely ridiculous ideas on what qualifies someone as an employee vs 1099 contractor that extend well beyond what the IRS considers, and frankly, well beyond their own written law in the event of an audit. They audit extensively and intrusively on that issue as well. It's absolutely absurd.

chasil 4y ago
Now is the time for anyone to get California in front of Clarence Thomas. "The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States." A sole owner of an Illinois business could be read in that text to have immunity from the California "minimum franchise tax." It would be helpful to see the Supreme Court remove California's abusive interstate taxation.
- otterley 4y ago
  The Privileges and Immunities clause has only been interpreted once by the Supreme Court and only (so far) protects the right to interstate travel (on your own two feet, BTW). It has never been held to forbid interstate taxation, and in fact, the right to interstate taxation was recently expanded in South Dakota v. Wayfair, Inc. (2018) when the Court was already conservative-leaning. The plain text of the Constitution often does not mean what laypeople think it means.
  - AdrianB1 4y ago
    > The plain text of the Constitution often does not mean what laypeople think it means. "We the people" does not seem to be written for Ivy League lawyers to understand and translate to laypeople. A Constitution written in a way that only a small percent of people are "trained" or "authorized" to understand or apply is a big time failure. Just sayin'
    - PaulDavisThe1st 4y ago
      The problem is not the way the Constitution is written. It's a bunch of people who think that their understanding of, for example, "Privileges and Immunities" is obviously correct.

brimble 4y ago

> 1099 is definitely the way to go for as long as you can - people still get social security credit. Dirty secret of remote work is that lots of companies are abusing the 1099 system to make it happen. The workers definitely don't meet rules for being 1099, but tax compliance (not to mention sorting out benefits) across a whole bunch of states and even countries is crazy overhead, so the realistic options are to make everyone 1099, or to only hire from one state. ... then again, a bunch of bigcos abuse 1099 for non-remote employees all the time and have for years, so, not like this is unique to smaller all-remote or remote-friendly companies.