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

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

No, you cannot hire employees as independent contractors to save money on taxes in New York. According to [4.1]" >12 NYCRR 142-2.14, an employee is any individual employed, suffered or permitted to work by an employer, except for certain exceptions. The exceptions include baby-sitters, companions, booth renters, and farm employees. However, independent contractors are not included in the exceptions.

Furthermore, New York State requires employers to withhold taxes from wages paid to employees, as stated in [3.1]" >NYCL TAX § 671. The employer must deduct and withhold from such wages for each payroll period a tax computed in such a manner as to result, so far as practicable, in withholding from the employee’s wages during each calendar year an amount substantially equivalent to the tax reasonably estimated to be due under this article resulting from the inclusion in the employee’s New York adjusted gross income or New York source income of the employee’s wages received during such calendar year.

Therefore, if you hire employees, you must classify them as employees and withhold taxes from their wages. Failure to do so may result in penalties and legal consequences.

In addition, nonprofitmaking institutions must establish, maintain, and preserve records for each employee, including name and address, social security number, wage rate, a record of hours worked daily and weekly during each payroll period, including the time of arrival and departure of each employee working a split shift or spread of hours exceeding 10, and a record for each payroll period of the amount of gross wages, deductions, if any, allowances, if any, and net wages paid, as stated in [2.1]" >12 NYCRR 142-3.6. Employers, including those who maintain their records containing the information required by this section at a place outside of New York State, shall make such records or sworn certified copies thereof available upon request of the commissioner at a place within New York State specified by the commissioner.

Finally, employers are liable for withheld taxes, and any amount required to be withheld and paid over to the tax commission, and any additions to tax, penalties and interest with respect thereto, shall be considered the tax of the employer, as stated in [3.2]" >NYCL TAX § 675. Any amount of tax actually deducted and withheld under this article shall be held to be a special fund in trust for the tax commission. No employee shall have any right of action against his employer in respect to any moneys deducted and withheld from his wages and paid over to the tax commission in compliance or in intended compliance with this article.

Source(s):

• [2.1] Employer payroll records requirements for nonprofitmaking institutions.
• [3.1] Requirement of withholding tax from wages
• [3.2] Employer’s liability for withheld taxes
• [4.1] Employee.

Jurisdiction

New York

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