Friday, July 10, 2009

Tax Withholding for Independent Contractors?

Got this in my email inbox today...
You should be worried if you...
(a) live in California AND/OR if you
(b) are an Independent Contractor AND/OR
(c) if you know that "Whatever happens in the 'land of fruits 'n nuts' (that would be CA) gets copied everywhere else"...
Apparently, the California Assembly just passed SB 17 on a majority vote which contains a provision for a 3% withholding tax on independent contractors.

If this bill becomes law, all who contract with IC's will be required to withhold 3% of the monthly check of every IC and remit this amount to the state, just like a payroll withholding tax.

Throughout history, across the country, Independent Contractors have been exempt from withholding taxes because many of their expenses are deductable. Independent Contractors make up a LARGE proportion of small businesses throughout the country. A fair percentage of them are part time contractors, most are family owned businesses. An up front 3% withholding could result in shortages of much needed operating capital that helps keep them running through the year during "down" months. Although they could potentially receive most (if not all) of the 3% tax back after filing year-end returns, the long wait for the return of those funds may force many of them out of business.

This legislation sets a dangerous precedent that other states, and even the Federal Government, could follow.

Beyond the hardship this places on Independent Contractors, and the extra paperwork burden it places on those who hire them, I see this as an attack on the entrepreneurial spirit as well.

Many entrepreneurs will think twice about hanging that "Open for Business" shingle on their lawn and/or posting it on their website. And... I'm guessing... far many more Independent Contractors will think twice about doing business with California firms.

As I recall, it was the small Mom and Pop businesses that helped California stay afloat at one point during their crisis.

This is the thanks they get?

I could be wrong -- but I wonder -- what percentage of those tea party goers are Independent Contractors? Sounds to me like their numbers are about to grow. I'm guessing grassroots instead of green shoots are about to carpet California.

If you are an Independent Contractor in California... or if you hire Independent Contractors for your business... here is the contact info for the CA Governor and Senate President. You might want to contact them to try to stop this freight train from steam rolling its way through your business...

Governor Arnold Schwarzenegger
State Capitol Building
Sacramento, CA 95814
Phone: 916-445-2841
Fax: 916-558-3160

Senate President Pro tem Darrell Steinberg
State Capitol, Room 205
Sacramento, CA 95814

It's your struggle now, California.

It might be our struggle next...

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