rentsch@unc.UUCP (Tim Rentsch) (01/01/87)
A couple of quick thoughts on the recent tax legislation requiring engineering and programming consultants to be considered "employees" for tax purposes: (1) Many university faculty consult "on the side", including those in Computer Science. Won't they be caught in the non-tax-exempt box along with the rest of the consultants? What effect will this have on Ph.D.'s considering a career in academic Computer Science? (2) I read recently (where? I can't remember) that Grace Murray Hopper was hired as a high-level consultant at DEC. Being a software type (well.... at least a "similar line of work"), doesn't that mean that Admiral Hopper can not be a consultant but must be an ordinary employee (at least for tax purposes)? cheers, Tim [ Note: starting 1 hour 20 minutes ago, Eastern Standard Time, engineering and programming consultants no longer exist. Please change the text of this message appropriately. :-) ]
campbell@maynard.BSW.COM (Larry Campbell) (01/02/87)
In article <488@unc.unc.UUCP> rentsch@unc.UUCP (Tim Rentsch) writes: >A couple of quick thoughts on the recent tax legislation requiring >engineering and programming consultants to be considered "employees" >for tax purposes: > ... THIS IS NOT TRUE. It is true ONLY for consultants who get work through temporary help agencies (body shops) and the like, and requires that they be considered employees of the temp agency. Totally free-lance consultants who do not use agencies are NOT AFFECTED. The legislation changing the tax status of contractors who work through body shops is totally sleazoid. It is apparently the fault of New York Senator Daniel Patrick Moynihan, who stuck the provision in as a favor to a constituent. The constituent is a large contract help agency (sorry, don't remember the name) that uses employees rather than contractors, and wanted to stick it to the smaller agencies that rely mostly on independent contractors. I suggest that letters to your congresscritters would be appropriate, especially for New York voters. There will be much fine-tuning of the tax "reform" bill this year, and so it may be possible to get this bit of sleaze removed. >(2) I read recently (where? I can't remember) that Grace Murray >Hopper was hired as a high-level consultant at DEC. Being a software >type (well.... at least a "similar line of work"), doesn't that mean >that Admiral Hopper can not be a consultant but must be an ordinary >employee (at least for tax purposes)? Grace Hopper is an employee of DEC, whose title happens to include the word consultant. -- Larry Campbell The Boston Software Works, Inc. Internet: campbell@maynard.uucp 120 Fulton Street, Boston MA 02109 uucp: {alliant,wjh12}!maynard!campbell +1 617 367 6846 ARPA: campbell%maynard.uucp@harvisr.harvard.edu MCI: LCAMPBELL
yerazuws@rpics.RPI.EDU (Crah) (01/02/87)
In article <795@maynard.BSW.COM>, campbell@maynard.BSW.COM (Larry Campbell) writes: > >(2) I read recently (where? I can't remember) that Grace Murray > >Hopper was hired as a high-level consultant at DEC. Being a software > >type (well.... at least a "similar line of work"), doesn't that mean > >that Admiral Hopper can not be a consultant but must be an ordinary > >employee (at least for tax purposes)? > > Grace Hopper is an employee of DEC, whose title happens to include the > word consultant. > -- > Larry Campbell The Boston Software Works, Inc. > Internet: campbell@maynard.uucp 120 Fulton Street, Boston MA 02109 > uucp: {alliant,wjh12}!maynard!campbell +1 617 367 6846 > ARPA: campbell%maynard.uucp@harvisr.harvard.edu MCI: LCAMPBELL Quite true - DEC has an interesting method of retaining people who've shown that they are hyper-sharp but don't want to move up in the management chain of command. It's called "Consulting Engineer" status and there are three main levels- Consulting, Group Consulting, and Corporate Consulting. Each level gets paid more than the previous level, and the rate is commensurate with managers pay rates. Consulting engineers don't have to manage (that would keep them away from doing what they do so well- engineering). Instead, they get to do NEAT stuff. For example, Richie Larrie is a consulting engineer - who just happened to be the designer of the HSC50 and HSC70. Clearly, he isn't bored. And all of these "Consulting engineers" are employees, not contractors.
rentsch@unc.UUCP (Tim Rentsch) (01/03/87)
In some previous article Larry Campbell writes: > [Excerpt from my previous article] > >A couple of quick thoughts on the recent tax legislation requiring > >engineering and programming consultants to be considered "employees" > >for tax purposes: > > THIS IS NOT TRUE. It is true ONLY for consultants who get work through > temporary help agencies (body shops) and the like, and requires that they > be considered employees of the temp agency. Totally free-lance consultants > who do not use agencies are NOT AFFECTED. Well, that is what I thought originally (source was a netnews article), but a subsequent article gave quite a different impression. The posting giving a summary quotation of the new legislation seemed pretty clear (here, let me see if I can dig it up ... scratch, scratch): Engineers, designers, drafters, COMPUTER PROGRAMMERS, SYSTEMS ANALYSTS or similary skilled workers engaged in a similiar line of work must be issued w-2 forms as COMMON LAW EMPLOYEES for income and employment tax purposes, according to the new FEDERAL Tax reform act of 1986 section 1706. The law is effective January 1 1987. It applies whether or not services of such individuals are provided only to one client or more than one client during the year; and whether or not such individuals are designated or treated as independent contractors, sole proprietors, partners, or employees of a personal service corporation controlled by such individuals or their families. Section 1706: TREATMENT OF CERTAIN TECHNICAL PERSONNEL. (a) IN GENERAL - Section 530 of the revenue act of 1978 is amended by adding at the end thereof the following new subsection: "(d) EXCEPTION - this section shall not apply in the case of an individual who, pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work." Well, the other posting is clear enough in its statement, even though the excerpt quotation is not complete. Who is right? Can we get a more authoritative statement, or a more complete excerpt of the law? (I hope we can get both.) Note that the person who said that all people are affected quoted some facts to back up his argument, although I admit I would like to see more. An argument of the form "It is so" "It is not" is not informative -- can we some some reasons and sources to back them up? cheers, Tim
kaufman@Shasta.STANFORD.EDU (Marc Kaufman) (01/03/87)
<previous articles omitted for brevity> I don't think we can get a *DEFINITIVE* ruling on this until the IRS makes up its operating rules. The purpose, evidently, is to get withholding tax from "consultants", many of whom are on very long term contracts via "body shops", who broker such workers. I think it is sufficient, in the body shop case, that the worker be an Employee of the body shop, and that the body shop (which collects the consulting fee from the ultimate employer) deduct Federal Income Tax on the way to paying the "consultant". While many consultant brokerages tend to read the ruling as being very broad, perhaps that is mostly to try to sweep in true independents and increase the complaint base. If you organize your business so that you are an Employee of a consulting firm, AND if you pay withholding taxes (as opposed to quarterly estimates) the IRS gains nothing by trying to reclassify you, so (possibly) won't.
tenney@well.UUCP (Glenn S. Tenney) (01/04/87)
In article <795@maynard.BSW.COM> campbell@maynard.UUCP (Larry Campbell) writes: >In article <488@unc.unc.UUCP> rentsch@unc.UUCP (Tim Rentsch) writes: > >>A couple of quick thoughts on the recent tax legislation requiring >>engineering and programming consultants to be considered "employees" >>for tax purposes: >> ... > >THIS IS NOT TRUE. It is true ONLY for consultants who get work through >temporary help agencies (body shops) and the like, and requires that they >be considered employees of the temp agency. Totally free-lance consultants >who do not use agencies are NOT AFFECTED. > Well, it is not clear to me. The Senate commentary seems to say that this is INTENDED to cover individuals retained by technical services firms, but the actual text doesn't. The actual text of 1706 (except for the general where it goes clause and when it takes effect clause) is only ONE sentence: "Exception -- This section shall not apply in the case of an individual who, pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work." What this says to me is that EVERY consultant is no longer given safe harbor and CAN now be considered an employee. It doesn't say they MUST be considered an employee, but we know how likly that is :-) The real problem is that the Feds will, I'm sure, send letters out to every company that submitted 1099's warning them that THEY will be liable for all those extra $$'s probably 20-30% of what they've already paid the consultant. If you were a company with that hanging over your head, what would you do? -- Glenn Tenney UUCP: {hplabs,glacier,lll-crg,ihnp4!ptsfa}!well!tenney ARPA: well!tenney@LLL-CRG.ARPA Delphi and MCI Mail: TENNEY As Alphonso Bodoya would say... (tnx boulton) Disclaimers? DISCLAIMERS!? I don' gotta show you no stinking DISCLAIMERS!
mjl@tropix.UUCP (Mike Lutz) (01/05/87)
In article <1085@Shasta.STANFORD.EDU> kaufman@Shasta.UUCP (Marc Kaufman) writes: > >I don't think we can get a *DEFINITIVE* ruling on this until the IRS makes >up its operating rules. The purpose, evidently, is to get withholding tax >from "consultants", many of whom are on very long term contracts via >"body shops", who broker such workers. I discussed this with my accountant (on New Year's Eve, when I also paid him for his services for the preceding year :-)). His firm holds to the "body shop" interpretation, and says you're still an independent consultant if a) you work for yourself, b) you determine you own rate, and c) you set your own hours. Most consultants academia meet all of these criteria. Of course, this isn't definitive (it never is until the IRS gets to play for awhile), but my accountant interprets tax laws very conservatively, so I'm betting he's got it right. Mike Lutz
mcb@styx.UUCP (Michael C. Berch) (01/06/87)
In article <1085@Shasta.STANFORD.EDU> kaufman@Shasta.UUCP (Marc Kaufman) writes: > > I don't think we can get a *DEFINITIVE* ruling on this until the IRS makes > up its operating rules. The purpose, evidently, is to get withholding tax > from "consultants", many of whom are on very long term contracts via > "body shops", who broker such workers. I think it is sufficient, in the > body shop case, that the worker be an Employee of the body shop, and that > the body shop (which collects the consulting fee from the ultimate employer) > deduct Federal Income Tax on the way to paying the "consultant". It may be *sufficient*, Marc, but it is precisely what we are trying to avoid! We do not *want* to be employees of the body shop, which entails (in addition to withhholding tax) deductions for mandatory unemployment taxes, workers' compensation policies, local employee taxes, and makes it impossible to take the normal deductions for business expenses that other self-employed people enjoy. > While many consultant brokerages tend to read the ruling as being very broad, > perhaps that is mostly to try to sweep in true independents and increase > the complaint base. If you organize your business so that you are an > Employee of a consulting firm, AND if you pay withholding taxes (as opposed > to quarterly estimates) the IRS gains nothing by trying to reclassify you, > so (possibly) won't. If you're an employee of the broker, and are paying withholding tax, you've *already been* "reclassified", my friend. If you try to set up your own corporation and become an employee of it, you have still not avoided the effect of the enactment, according to the Senate Floor and Committee Reports. Michael C. Berch ARPA: mcb@lll-tis-b.arpa UUCP: ...!lll-lcc!styx!mcb ...!lll-crg!styx!mcb ...!ihnp4!styx!mcb
kaufman@Shasta.STANFORD.EDU (Marc Kaufman) (01/06/87)
In article <21143@styx.UUCP> mcb@styx.UUCP (Michael C. Berch) writes: >In article <1085@Shasta.STANFORD.EDU> kaufman@Shasta.UUCP (Marc Kaufman) writes: > ... it is precisely what we are trying >to avoid! We do not *want* to be employees of the body shop, which >entails (in addition to withhholding tax) deductions for mandatory >unemployment taxes, workers' compensation policies, local employee >taxes, and makes it impossible to take the normal deductions for >business expenses that other self-employed people enjoy. Well, yes, but other "self-employed" people tend not to work exclusively for one broker (re-employer). I see nothing in this that makes it impossible to deduct business expenses. As for unemployment and workers comp, in California that is not necessary unless there are other employees. It sounded to me like the new law tried to eliminate under-reporting of income, late (quarterly) payment of taxes (rather than monthly), and the lower SSI rate given to "self-employed". If you don't "*want*" to be an employee of the body shop, do business in a manner that suggests you are truly independent, rather than "on-call". BTW: a secondary reason for the new law may be to try to protect technical people from unreasonable denial of ordinary benefits (e.g. vacation, sick leave, retirement plans). I know of several companies that have used "consultants" full time for an extended period, but have not given them the benefits of employees.
davidsen@steinmetz.UUCP (01/09/87)
In article <235@tropix.UUCP> mjl@tropix.UUCP (Mike Lutz) writes: >In article <1085@Shasta.STANFORD.EDU> kaufman@Shasta.UUCP (Marc Kaufman) writes: >> >>I don't think we can get a *DEFINITIVE* ruling on this until the IRS makes >>up its operating rules. The purpose, evidently, is to get withholding tax >>from "consultants", many of whom are on very long term contracts via >>"body shops", who broker such workers. If you don't use a body shop at all, I think you are clearly independent. If you collect from a bodyshop and the customer pays the bodyshop directly, then I find it hard to argue that you are in fact an employee of the bodyshop. The question is the status of people who have the bodyshop find them a job. If you contract directly with a customer, and pay a fee to the bodyshop for finding you the job, I think that the bodyshop is acting as an employment agency, not an employer. Obviously this will be tested in court at some point. -- bill davidsen sixhub \ ihnp4!seismo!rochester!steinmetz -> crdos1!davidsen chinet / ARPA: davidsen%crdos1.uucp@crd.ge.com (or davidsen@crd.ge.com)
mat@mtx5a.UUCP (01/10/87)
> ... > If you don't "*want*" to be an employee of the body shop, do business in a > manner that suggests you are truly independent, rather than "on-call". > BTW: a secondary reason for the new law may be to try to protect technical > people from unreasonable denial of ordinary benefits (e.g. vacation, sick > leave, retirement plans). I know of several companies that have used > "consultants" full time for an extended period, but have not given them > the benefits of employees. Let me point out that there are a lot of people who don't *want* some benefit or another, or who can never use it. If you are a sole proprietor you'll never collect Unemployment. Why should you pay for it? (To make matters worse, in some states strikers collect Unemployment for walking off their jobs.) What if you don't want to pay for a salesman, and are willing to take the risks (downtime, loss of work, etc) that come with being in business for yourself? The old way seems fairer to me. Given the suspicious conditions under which this piece of legislation was pushed through, I can only conclude that someone was trying to play games with Bedfellow Moynihan. It's been said that we have the best legislators that money can buy. There's something else: this law applies to engineers, and presumably to PEs. Licensed Professional Engineers have a responsibility to the public safety; will this compromise their independence? -- from Mole End Mark Terribile (scrape .. dig ) mtx5b!mat (Please mail to mtx5b!mat, NOT mtx5a! mat, or to mtx5a!mtx5b!mat) (mtx5b!mole-end!mat will also reach me) ,.. .,, ,,, ..,***_*.
pedz@bobkat.UUCP (Pedz Thing) (01/14/87)
In article <1712@mtx5a.UUCP> mat@mtx5a.UUCP writes: >The old way seems fairer to me. They tell me that life is not fair. And we all know that the #&*%ing tax law was never intended to be fair. How about a new T.V. program called ``Congressional Blowup?'' "Yea, Tip O'Neal, he blowed up real good." -- Perry Smith {convex!ctvax,{ti-csl,infotel}!pollux}!bobkat!pedz