Race Against the Clock.

• Author: SCHUNKE, HEIDI
• Position: Brief Article

BEGINNING JAN. 1, 2001, businesses across the state will race against the clock to meet new EDD reporting requirements for independent contractors.

Any business or government entity that is required to file a Form 1090-MISC for independent contractors services (service-recipients) will be required to report all independent contractors within 20 days of either making payments totalling $600 or entering into a contract for $600 or more with an independent contractor, whichever is earlier. This includes anyone subject to the California Revenue and Taxation Code inside or outside of the state.

For example, a California-based company with a small office in Florida that hires a gardener, would need to file a report (Form DE 542) on that gardener. Likewise, a Florida-based company that hires a California gardener for its Sacramento office also would have to file a report.

Reports do not have to be filed if the independent contractor is a partnership, LLC or general corporation.

PAPERWORK

These new requirements are designed to help collect child support from delinquent parents.

Many businesses consider the requirements burdensome since they cannot be filed in conjunction with 1099s. To ease this burden somewhat, EDD will allow businesses to report independent contractors in advance of actually making payments or entering into contracts.

Therefore, as businesses capture preliminary 1099 data for 2000 reporting, they will be able to isolate ongoing contracts for 2001. In turn, businesses can submit Form DE 542 for ongoing contracts in advance and ease some of the paperwork burden. Also, EDD has revised Form DE 542 to include a check-off box that indicates an ongoing contract, so each individual does not have to be reported each year.

ENFORCEMENT

Once Form DE 542 has been filed, it will be matched with Department of Justice records. Matches will be forwarded to local child support agencies, and if appropriate, trigger a notice for wage withholding.

While EDD is responsible for enforcement of these new requirements, FTB is responsible for collecting garnishments. Pending legislation (Assembly Bill 1358) will establish a penalty of $24 for omitted or late filed reports. Additionally, if a business does not report an independent contractor who owes delinquent child support, a custodial parent can file a suit in small claims court.

INDUSTRY MEMBERS

If you work in industry and hire independent...