In the United States the trucking industry is a nearly $800-billion industry that is responsible for moving just over 70 percent of the country’s freight.
The trucking industry is subject to a handful of unique income tax issues. In addition, changes under the Tax Cut and Jobs Act (TCJA) affect “nearly all carrier types and fleet sizes, from owner operators with a few power units all the way up to Fortune 500 transporters.”
The primary income tax issues discussed here today will be that of an employee versus a contractor.
• Employee/contractor distinction
The general rule is that someone is treated as a contractor if the payer “controls the result of the work, not what will be done or how it will be done.”
Trucking companies, especially the largest companies, often hire drivers as employees.
However, they also may engage owner-operators who act as independent contractors and own their own vehicles.
The general rule is amplified by examining:
• Behavioral control. The type and degree of instructions given, plus training and evaluation, speak to this category.
• Financial control. This category is informed by the party that bears the expenses associated with the work, the opportunity for profit or loss, and the type of compensation received.
• Type of relationship. The type of benefits associated with the relationship, whether it is permanent, and the type of services provided are all considered in this category.
A Certified Public Accountant can provide you with guidance as to the classification of persons you engage for services. Help is just a phone call away and you can schedule a no cost consultation today.
Let’s say Trans Company operates in the trucking industry transporting goods between major manufacturers and retail locations along the eastern sea belt of the United States. Trans Company employs 50 full-time truck drivers. However, as the company’s volume often increases during the holidays, Trans Company sometimes hires independent contractors to assist with local deliveries during the peak months of November and December.
In November, Trans Company contracted with John Brown, who is an independent driver from Mississippi who has his own truck. Mr. Brown is going to assist with several hauling jobs during the last two weeks of November and the first week of December. The amount paid to Mr. Brown for each job will be a function of a flat rate adjusted based on mileage and weight.
In this case:
• It is important to note that the 50 full-time drivers are treated as employees. Trans Company withholds income taxes from the employees’ paychecks and pays related payroll taxes including FICA and unemployment taxes. The employees are sent a W-2 reporting their wages at the end of the year.
John Brown on the other hand is not treated as an employee; he is treated as an independent contractor for tax purposes. The company will issue a check to pay him for his services and send him a Form 1099 at the end of the year to report the total payments made.
Mr. Brown will be responsible for paying his own self-employment taxes.
Companies are responsible for complying with employment and income tax withholding requirements for employees, but the same is not true for independent contractors unless such contractors are statutory employees.
User | 29/12/2021