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1-
Government requirements: a.
INS
I-9:
This form must be completed by employers to verify the employee eligibility for
employment b.
IRS
W-4:
This form is to be completed by all employees to verify the amount of
withholdings. c.
IRS
W-9:
This form is to be completed by non-employee contractors and/or subcontractors.
The form may be used to report a social security number (SSN) for sole
proprietor or Employer identification number (EIN) for other entities.
Withholding may be required in certain circumstances under 1099-Misc payments 2-
Employer’s file requirements: a.
Verifiable
address: The address must at-least match the address seen on
one of the ID forms used for the I-9. b.
Verifiable
Contact number: Employee’s
home telephone number should be verified and maintained in employer’s file. If
home number is not available obtain an alternative number from the employee c.
Verification
of disability: Employer MUST
verify whether the employee requires any special assistance and/or accommodation
due to a disability. The American with Disability Act has a broad impact on the
workplace. d.
Next
of kin:
Employer
needs to have on-file verifiable information for the next-of-kin and/or an
emergency contact to notify in case of emergency. The number cannot be the same
as the employee home or cellular phone number. e.
Letter
of understanding: For contractors
and any non-employee (anyone receives compensation using 1099-MIS). The letter
of understanding must clearly indicate that the contractor: w
Is
not and will not be treated as an employee w
Will
be solely responsible for paying his/her own income taxes w
The
Payor of 1099 (employer) will not be withholding any amount of the payment made
to the contractor w
The
contractor will not be covered under the Payor of 1099 (employer) unemployment
insurance w
The
employee will not receive nor will he/she be afforded any health insurance w
The
employee will not be cover under the Payor (employer) workers’ compensation
(except under certain circumstances f.
Liability
Insurance for subcontractors: A
valid liability insurance for all subcontractors performing a work function for
the main-contractor (employer). The limit of such insurance must be set in
accordance with the value of clients’ assets exposed to the subcontractor. The
main contractor (employer) must be named as co-insured on he policy g.
Subcontractor/Employee
proof of qualification: For all employees and/or
subcontractors performing “Technical” and/or “Professional” function the
employer/main-contractor must maintain: w
Copy
of license and/or permit: for those performing professional
function regulated by the state, city, or the federal government such as
Attorneys, CPAs, Physicians, Electricians, Plumbers, etc. This is a mandatory
requirement. w
Copy
of Certification/Diplomas: for those performing technical
function not regulated by state, city, or the federal government such as System
Engineers, Certain Software Consultants, and/or implementers. This is not a
mandatory requirement; however, it is highly recommended in order to minimize
exposure and liability for damages to clients’ assets. h.
Non-Competing
Agreement: To avoid loosing clients to the subcontractors. This
type of agreement is not enforceable in the State of Texas. 3-
Payroll
taxes: a.
Payroll
Taxes: Employers are responsible for withholding federal
income tax, Social Security and Medicare tax, and State Income tax (if
applicable) from wages and compensation paid to employees, deposit such amount
(usually on a monthly basis) to the appropriate government account, and file
quarterly tax return for employment taxes. b.
How
much taxes the employer should withhold:
The amount of taxes to be withheld by employers from employees wages are
based upon the marital status, number of dependents, and the residency status of
the employee. w
For
US citizens and resident aliens: The amounts withheld depends
upon the information provided by the employee on form W-4 and it is to be
determined mainly based on marital status and the number of depends claimed. w
For
foreign persons and Non Resident Aliens: The
payor of compensation/income MUST withhold and forward to the government certain
percentage, which is usually 30% of the income paid to the foreign person (the
percentage can be 10, 20, or 30%) if the income concerned is: 1.
Connected to the United States by source (obtained in the US), or 2.
Connected to the United States by entity (the payor of such income is a
US person.) US person include US
citizens and Resident Aliens, US Corporations, Partnerships, etc, and any
foreign entity if a US person owns 10% or more of such foreign entity) c.
Liability for payroll taxes:
Social security and Medicare taxes are to be paid one-half by the
employee and one half by the employer. Other federal taxes such as the Federal
Unemployment, and the State Unemployment taxes are the employer’s liability
4-
Filing
requirements for payroll taxes: a.
Federal
Employment Taxes: Employers are required to deposit federal employment
taxes periodically and file certain tax returns either quarterly or annually.
These returns will include: w
The
Employer Quarterly Federal Tax Return, FORM 941 w
Employer’s
Annual Unemployment Tax Return FORM-940 b.
State
Employment Taxes: Employers are required to establish an employer
account in each state at which they maintain employees and pay payroll-related
taxes. Such taxes may include among others State income Tax (SIT) and State
Unemployment Tax (SUTA). c.
Texas
Employment Taxes: Employer in the state of Texas should register with
Texas Workforce Commission and obtain employer number if the employer if any of
these conditions is met: w You paid as much as $1,500 in wages in any calendar quarter.
w You have at least one employee for a day or part of a day in any 20
separate weeks during a calendar year. The weeks don't have to be
consecutive and part time employment counts toward this requirement.
w You acquired the organization, trade or business, or substantially all of
the assets of a subject employer. w You wish to voluntarily elect to pay state unemployment tax even though
you do not meet any of the minimum criteria which make it mandatory that you pay
the tax. w You are subject to the Federal Unemployment Tax Act and had any employees
in Texas, or you are required by the Federal Unemployment Tax Act to be covered
by the state. w You paid wages in cash of $1,000 or more in a calendar quarter for
domestic service. w You employed a seasonal worker on a truck farm, orchard or vineyard.
w You employed migrant workers on a farm or ranch.
w You employed seasonal workers, who performed the same work at the same
time and same place as migrant workers. w You had 3 or more people, performing farm or ranch labor, in at least 20
separate weeks during a calendar year. w You paid cash wages of $6,250 or more, for farm or ranch labor, in a
calendar quarter. "Wages"
means all remuneration paid for personal services, including the cash value of
all remuneration paid in any medium other than cash and gratuities received by
any employee in the course of employment d.
In the state of Texas employers can register on-line or by using TWC form
C-1. The quarterly report is filed using Form C-3 and adjustment to an account
is done using Form C-5 e.
Texas-SUTA is applied only to the first $9,000 of paid wages to any one
employee 5-
Using
Non-Resident or Foreign Consultants: a.
Under the Internal Revenue Code, U.S. Citizens and permanent Residence
are taxed on worldwide income regardless the source of the income. All income
derived from sources within the United States or connected to the taxable U.S.
entities is taxable to the recipients regardless whether the recipients
residency status. A foreign entity
may become taxable if 10% of its shares are owned by a taxable U.S. person
(person including corporations, etc.) b.
If the consultant is a foreign entity, Payor/Employer should obtain a
TAX-ID for such consultant using Form W-7 in order to deduct payments
made to the consultant. c.
Payor / Employer will become a holding agent and must withhold taxes on
any amount of U.S. connected income paid to a foreign entity at the rate of 30%.
(30 percent is the general and highest tax rate applicable to foreign entities;
lesser tax rates may be applicable under certain conditions.) d.
Payor / Employer must file a return and remit the amount withheld from
foreign entity to the Treasury. e.
The foreign entity / taxpayer should file a tax return and claim refund
for taxes withheld by Payor using Form – 1040NR
6-
Recommended
Items for Employer File a.
Personal and work References, Resume and passport picture b.
School Transcripts c.
Copy
of Driver License and Social Security card d. Copy of work visa and foreign passport when applicable e. Letter of good standing obtained from the secretary of state for incorporated entities |
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