Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 19, Problem 9C
To determine

Discuss the issues that are raised by the given situation, from the perspective of financial and ethical reporting.

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Many small businesses have to squeeze down costs any way they can just to survive.  One way many businesses do this is by hiring workers as independent contractors rather than as regular employees.  Unlike rules for regular employees, a business does not have to pay social security (FICA) taxes and unemployment insurance payments for independent contractors.  Similarly, it does not have to withhold federal, state, or local income taxes or the employee’s share of FICA taxes.  The IRS has a 20-factor test determining whether a worker should be considered an employee or a contractor, but many businesses ignore those rules or interpret them loosely in their favor.  When workers are treated as independent contractors, they do not get a W-2 form at tax time (they geta 1099 instead), they do not have any income taxes withheld, and they find themselves subject to self-employment taxes, by which they bear the brunt of both the employees and the employer’s share of FICA taxes.  Requirements…
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Intermediate Accounting: Reporting And Analysis

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