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Can I hire employees as independent contractors to save money on taxes in Alabama? What are the requirements?

According to the Alabama Department of Labor, misclassifying employees as independent contractors is illegal and can result in penalties and fines [1.1]. To determine whether a worker is an employee or an independent contractor, the Department of Labor considers several factors, including the degree of control the employer has over the worker, the worker’s opportunity for profit or loss, and the worker’s investment in equipment or materials [1.1].

If you decide to hire employees in Alabama, you must comply with state and federal employment laws. Here are some requirements to keep in mind:

  • Obtain an Employer Identification Number (EIN) from the IRS [1.1].
  • Register with the Alabama Department of Revenue for state tax purposes [1.1].
  • Verify that your employees are authorized to work in the United States by completing Form I-9 [1.1].
  • Withhold federal and state income taxes, Social Security taxes, and Medicare taxes from your employees’ paychecks [1.1][3.1].
  • Report your employees’ wages and taxes to the IRS and the Alabama Department of Revenue [1.1][3.1].
  • Provide workers’ compensation insurance coverage for your employees [1.1].

Misclassifying employees as independent contractors to save money on taxes is illegal in Alabama. However, if you hire unemployed or combat veterans for a full-time position paying at least $14 per hour, you may be eligible for an additional $1,000 tax credit per employee [1.2].

In conclusion, it is illegal to hire employees as independent contractors to save money on taxes in Alabama. If you decide to hire employees, you must comply with state and federal employment laws, including obtaining an EIN, registering with the Alabama Department of Revenue, verifying your employees’ work authorization, withholding taxes, and providing workers’ compensation insurance coverage.

Source(s):
Jurisdiction

Alabama