Hiring Workers With ITINs

Today TaxMama hears from Goran in the TaxQuips Forum, with a serious issue. “I am a contractor and have my own flooring company. I would like to know if I may have helpers with only an ITIN number. Then, could I file 1099’s with only an ITIN number to deduct on my taxes? 

Dear Goran,

First of all, you may not hire helpers and NOT put them on payroll.  If they are working for you – they are your employees.  You will find that if you do not file payroll tax returns for these employees, IRS can audit your business forever – because the forms were never filed. Filing 1099s will only make it worse.

Second, when it comes to ITINs?  ITINs are designed for people who are not entitled to Social Security Numbers (SSN). If they are allowed to work in the United States, they would be issued an SSN. When you hire someone to work for you, you need to have each and every person fill out a Homeland Security Form – Form I-9.

They must provide at least two forms of identification – one to prove their identity, the other to prove their right to work in the US. You must make a copy of those IDs and keep them in the file. Only then, once you have verified that they are eligible to work, may you have them fill out a Form W-4, telling you how much money to withhold from their paychecks for income taxes.   If you are audited, IRS will disallow the deductions, since the employees are not legal.

 I know it’s not easy running a business and comply with all the laws.  But the penalties and the headaches are worse when you do not. And you are familiar with all the Immigration raids in the news.  I don’t want to see your name in the news – at least not for this.

 And remember, you can find answers to all kinds of questions about hiring employees and other tax issues, free. Where? Where else? At  www.TaxMama.com.

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3 thoughts on “Hiring Workers With ITINs

  1. Pingback: Ask TaxMama Issue 594 April Fools Day | taxmama

  2. TaxMama says:

    Aaah, Marina,

    This is SO true!

    In fact, the worst offenders in this regard are friends who beg you to hire them – often, under the table.
    Then, they do a lousy, disrepectful job.
    When they finally quit, or are fired – go running off to unemployment or disability to file a claim.
    I have also had this happen to clients – clients who only tried to help out a friend in desperate need.
    And …you know the old rule –
    No good deed goes unpunished!

    States are hungry for money.
    The audit WILL come from the state.
    Beware.

  3. Marina Martin says:

    Be very very careful when hiring an employee and paying him/her as a 1099. Four years ago a client of mine (against my suggestions) kept paying an A/R person as 1099 instead as employee. She worked for almost two years, received a 1099 at the end of the first year and so on… Finally, she was replaced with someone more qualified The first thing she did, was to he Unemployment Office (in CA) which started an investigation that included a complete review of all employees and subcontractors the company had for the prior 5 years. To make the long story short , he ended up in paying old unemployment taxes with penalties and interets, we had to re-file IRS forms 940-941 in addtion to my hourly fees and a trip to CA (from MD) to meet with investigators from the State. .. and this for one 1099 !!!

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