CA Independent Contractor Withholding – Where Do YOU Stand?

I just heard last night about a California state proposal to begin to require companies to withhold three percent of all monies paid to 1099 independent contractors.  MANY organizations are opposing this for the following reasons:

  • Extra costs for local governments to enforce the withholding
  • Extra costs for businesses to administer the withholding
  • This is not incremental revenue for the state…just accelerated revenue

These are some good reasons…but I have a few more that impact me personally…

  • I use subcontractors and pay at least 10 subcontractor invoices each year…I would need to do accounting/reporting/payment on each of those to the state (monthly? quarterly?)
  • This is a double-hit since I would be receiving three percent less on all of my own project invoices, even though I’m already required to pay 70% of my estimated state taxes by June 30th for at least the next two years

Any of you who are independent contractors and 1) pay estimated taxes and/or 2) hire subcontractors/1099 resources will also be impacted.

The California Chamber of Commerce, California Special Districts Association, and others are encouraging anyone in opposition to this proposal to write letters to your California Senators and Assemblyman.  See this link to get the info you need to identify who to write to, including their mailing address.  See a sample letter/template to inspire your creativity (you’ll need to ‘make it your own’ since this is a template for businesses/CEOs to send).

Hearing about this proposal makes me realize that I need to stay much more informed about legislative issues that impact my business…good sources of information for small businesses and independent contractors: California Chamber of Commerce, National Association for the Self-Employed, and National Association of Women Business Owners.   We all need to stay informed!

About Jen Berkley Jackson

Jen Berkley Jackson, founder and owner of The Insight Advantage, has extensive experience in using various methods (surveys, focus groups, one-on-one interviews) to integrate the voice of the customer into all functions, helping organizations increase market share, revamp product lines/services, and ultimately increase customer loyalty and retention.

Comments

  1. P.S. If you would like to see a copy of the letter that I’m personally sending to my state representatives, please just send me an email: jberkley@theinsightadvantage.com

  2. Jen, Thanks for making us aware of this in time to be proactive. I had heard that this might be afoot, but didn’t know it
    had made it to legislation.

  3. Jen, this just makes my blood boil–so much so, it’s melting the snow here in Sequoia! It’s going to cost contractors jobs, because there will be companies who won’t want the added burden of tracking this withholding. And it’s incredibly shortsighted, too. It’s not going to give CA any more tax revenue. It’s essentially just asking small businesses to float them an interest-free loan.

    I found a good article on calchamber.com that gives a good overview of what is being proposed and the impact, adding to what you listed in your post: http://www.calchamber.com/headlines/pages/fastgrowingcoalitionopposingindependentcontractorwithholding.aspx.

    Since I incorporated this past year, I won’t have to suffer the withholding, but I will have to do the withholding on all my subs, track it, submit it, and pay my accountant to help with all that–most likely even employ my payroll firm to help process these payments. What a pain.

    Thanks for letting us know!

  4. This is definitely not good news. Does anyone know how this would impact consultants who are incorporated?

    If corporations are not covered under this rule, it might be a great time to think about incorporating your business.

    Linda

  5. Here’s a fact sheet that I found on calchamber.com: http://www.calchamber.com/Grassroots/Documents/IndependentContractorFactSheet.pdf.

  6. Dave44000@yahoo.com' David Locke says

    The law is not revenue neutral. Keep in mind that nobody gets a state income tax refund. Instead, they get a voucher, so the contractor will get a voucher while the state plays with money that the state would have never received. You can thank the Gov for this.

  7. Based on the fact sheet Avery posted, it’s likely that unincorporated S Corps will not have to withhold the 3%…not sure…regardless, I’m still opposed to having my $$ taken even earlier than already escalated by the state…

  8. This sounds like the way companies handle employees. We work so hard to make ourselves NOT employees in the eyes of our clients. While I wouldn’t say this is a primary reason to oppose this legislation, it will make lines blurry. I think it will give companies more reason to say, “Let’s just put you on a W-2 basis with our temp agency.”

  9. Good information, Jen. I hope that this does not become law. But the State of CA is desparate to get our money earlier, rather than later, so it may happen. I will send a letter too.

  10. robin@pieracciconsulting.com' Robin Pieracci says

    Jen, thanks so much for bringing this to our attention and for the informative links!

  11. Jen,

    Excellent post! I’ll share this with Women Impacting Public Policy too – http://www.wipp.org. This group of over 500,000 women nation-wide has many business owners that will be impacted by this kind of legislation. We definitely need to take an immediate stand to prevent taxes that make it hard for consultants and contractors to work in California.

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