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So IRS is asking FTX to pay millions of dollars in unpaid payroll taxes as result of classifying FTX workers from contractors to employees. Will IRS refund said

by dh2022 3y ago

So IRS is asking FTX to pay millions of dollars in unpaid payroll taxes as result of classifying FTX workers from contractors to employees. Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C? (Contractors pay their own payroll taxes when they file Schedule-C; companies pay payroll taxes for their employees, but not for their contractors)

rickreynoldssf 3y ago
Employers pay an additional tax on payroll. The withholdings they send to IRS is not considered a tax.
- deleted 3y ago
  [deleted]
- ericpauley 3y ago
  Contractors have to pay both halves. If they did this (big if) they’d be owed a refund.
- 300bps 3y ago
  When you're a 1099 contractor you fill out Schedule C and pay as the employee and the employer.
  - throwway120385 3y ago
    There was a nice tax holiday on this a few years ago.
    - PopAlongKid 3y ago
      There was a deferral due to Covid for paying self-employed tax, but it still had to be paid eventually.
- prepend 3y ago
  When I did my own withholding, I had to withhold Medicare and social security taxes on my employees behalf and deposit it quarterly. These are certainly taxes and there is withholding for the employer portion as well as for the employee portion withheld on their behalf along with income and any other applicable taxes. Here’s a quote from the IRS [0]: “ An employer generally must withhold social security and Medicare taxes from employees' wages and pay the employer share of these taxes.” [0] https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes https://www.irs.gov/businesses/small-businesses-self-employe...
- loeg 3y ago
  You are entitled to a refund of any excessive withholding you make beyond your tax liability. The argument is that, as the now employees understood themselves to be contractors, they paid the (higher) contractor tax rate (employee + employer). If the IRS is retconning them as employees and FTX owed the employer's share of the employees' taxes, the employees are entitled to a refund of the amount they overpaid.
choppaface 3y ago
wait, who says these FRX contractors ever paid tax to begin with?
- kelnos 3y ago
  Assuming their employer sent 1099s to the IRS like they are supposed to, it's unlikely that any significant portion of them ended up dodging their tax burden.
londons_explore 3y ago
> Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C? If my understanding is correct, merely the fact the IRS has officially made this classification entitles those workers to a refund, even if the IRS never manages to collect the money from FTX. A nice big fat bonus paycheck for the workers there!
PopAlongKid 3y ago
> Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C? Possibly, if they ever actually collect it. (not sure of the legal requirement here) The best thing a contractor in this situation can do is file an amended return now, using Form 8919 to re-calculate the employee share of FICA tax they owe. This will also involve filing Form SS-8 (separately) to dispute their status as a contractor. It may take several years to get processed, but at least it creates a formal claim that the IRS will have to eventually honor or deny. Also note that only the 7.65% employer portion of FICA, less the income tax deduction that Schedule C filers get for that, is in question. Also, as employees there may be other business deductions they took on Schedule C they would no longer be entitled to. The employer (FTX) is also liable for taxes that sole proprietors don't pay, such as FUTA (federal unemployment), and a variety of state payroll taxes most likely.

by dh2022 3y ago

rickreynoldssf 3y ago

Employers pay an additional tax on payroll. The withholdings they send to IRS is not considered a tax.

deleted 3y ago
[deleted]
ericpauley 3y ago
Contractors have to pay both halves. If they did this (big if) they’d be owed a refund.
300bps 3y ago
When you're a 1099 contractor you fill out Schedule C and pay as the employee and the employer.
- throwway120385 3y ago
  There was a nice tax holiday on this a few years ago.
  - PopAlongKid 3y ago
    There was a deferral due to Covid for paying self-employed tax, but it still had to be paid eventually.
prepend 3y ago
When I did my own withholding, I had to withhold Medicare and social security taxes on my employees behalf and deposit it quarterly. These are certainly taxes and there is withholding for the employer portion as well as for the employee portion withheld on their behalf along with income and any other applicable taxes. Here’s a quote from the IRS [0]: “ An employer generally must withhold social security and Medicare taxes from employees' wages and pay the employer share of these taxes.” [0] https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes https://www.irs.gov/businesses/small-businesses-self-employe...
loeg 3y ago
You are entitled to a refund of any excessive withholding you make beyond your tax liability. The argument is that, as the now employees understood themselves to be contractors, they paid the (higher) contractor tax rate (employee + employer). If the IRS is retconning them as employees and FTX owed the employer's share of the employees' taxes, the employees are entitled to a refund of the amount they overpaid.

choppaface 3y ago

wait, who says these FRX contractors ever paid tax to begin with?

kelnos 3y ago
Assuming their employer sent 1099s to the IRS like they are supposed to, it's unlikely that any significant portion of them ended up dodging their tax burden.

londons_explore 3y ago

> Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C? If my understanding is correct, merely the fact the IRS has officially made this classification entitles those workers to a refund, even if the IRS never manages to collect the money from FTX. A nice big fat bonus paycheck for the workers there!

PopAlongKid 3y ago

> Will IRS refund said workers the payroll taxes workers paid as part of their Schedule-C? Possibly, if they ever actually collect it. (not sure of the legal requirement here) The best thing a contractor in this situation can do is file an amended return now, using Form 8919 to re-calculate the employee share of FICA tax they owe. This will also involve filing Form SS-8 (separately) to dispute their status as a contractor. It may take several years to get processed, but at least it creates a formal claim that the IRS will have to eventually honor or deny. Also note that only the 7.65% employer portion of FICA, less the income tax deduction that Schedule C filers get for that, is in question. Also, as employees there may be other business deductions they took on Schedule C they would no longer be entitled to. The employer (FTX) is also liable for taxes that sole proprietors don't pay, such as FUTA (federal unemployment), and a variety of state payroll taxes most likely.