RECLASSIFY CONTRACT LABOR - Spidell

RECLASSIFY CONTRACT LABOR

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Message Board RECLASSIFY CONTRACT LABOR

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    • #266374
      Anonymous
      Member

      Does CA have a program similar to the federal VCSP allowing voluntary reclassification of contract labor as employees?

      My clients, an elderly couple, paid their granddaughter to provide in home health care in 2019.  The total amount paid was $40K.  A 1099MISC was not issued prior to the 1/31/20 deadline.  The granddaughter is now insisting on a W2 for 2019.  Any recommendations on how to rectify this situation?

      My thought was to issue the 1099MISC and apply for the VSCP and begin classifying the granddaughter as an employee as of 10/1/20 (the 60 day window to process the VSCP application per the instructions).  Although the 1099 was not issued timely, hopefully the circumstances of the situation will provide some leniency regarding the timely filed requirement.  This solution probably won’t satisfy the granddaughter, but will get the “employer” on the right side of reporting going forward.  Does CA have a similar program?  If not, how is the situation corrected with CA?

      Payments made were reimbursed by an LTC contract.  The LTC contract will terminate in about 12 months.  The only assets the couple have are their home and $50K in savings.

       

    • #266392
      Mark Bole
      Participant

      No, CA does not have equivalent to VCSP. (Voluntary Classification Settlement Program).  It does not seem appropriate anyway for a household worker.

      The rest of your post is confusing and I think contains some false assumptions.

      Your clients are not conducting a trade/business and therefore are not required to issue 1099-MISC Box 7 (switching to 1099-NEC as of 2020).

      The worker cannot “insist” on a W-2 if there was no employment, unless they want to file fed Form SS-8 and cause everyone a lot of trouble and delay, or start an EDD employment audit (see also EDD Form DE 1870). Employment includes not only payroll tax and filing, but worker’s comp and various other legal requirements beyond taxes.  To try to go back to 2019 and retroactively file state payroll tax returns (Schedule H for fed) and pay all the withholding and employer taxes, penalties, and interest now would be prohibitively expensive IMO, with no real benefit for anyone.  Plus, since there was presumably no withholding, is the worker prepared to pay back the amounts that should have been withheld?

      The daughter should simply file her own Schedule C for 2019.  They can start treating her as a proper employee for 2020 starting now.  Obviously her hourly rate should be lower if treated as an employee, since the employer will be paying a share of FICA on her behalf as well as other benefits such as Unemployment Insurance.  She will also have to pay CA SDI tax on her wages (not required as a Schedule C).

      When you say payments were “reimbursed” by an LTC contract, what form did the reimbursement requests take?  In other words, how did the taxpayer document the money they paid to the worker?

       

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