Tax Issues

The Work Opportunity Tax Credit (“WOTC”) can save employers thousands of dollars per eligible employee, but it is one of the many tax credits set to expire at the end of 2013. If you are planning to hire new employees, you can still take advantage of this tax credit if hiring occurs prior to December 31, 2013. If you will not meet this deadline, do not fret: there are rumors that Congress will be extending the credit for another year.

The following was written by Guy Alessandro, CPA and a well-respected colleague of mine.

By definition of law LLC members are not employees, they are self-employed. They are not eligible to be paid as employees and issued W-2 forms at year end. Members that draw salaries must do so without tax withholding and are personally responsible for all taxes. Member salaries are reported annually on form K-1 as “Guaranteed Payments to Partners”.

Typically, members draw non-payroll salary checks without withholding taxes and then personally pay quarterly federal and state estimated tax payments. Some members find this process inconvenient, costly (paying the accountant to calculate quarterly payments) and unsettling compared to withholding and remitting taxes every week through the payroll system.