I usually bill clients for time worked in a month, and it's always been as an indepenent (1099). I have a new client that has to engage me via a temp agency, even tho I've provided a firm bid for the work. So for the first time I have a "paycheck" to deal with. The entire project will be done in a month.
I'm not sure how to enter this in H&B 2006. I'd like to create an invoice for each paycheck, and somehow allocate the amounts that have vanished into taxes. Does H&B or Q in general have a simple "I'm an employee and I enter my paychecks every week" set of functions, that I could somehow mix in with invoices? Open to any suggestions. At the end of the year, my cpa will be able to figure out the facts, but I'd like to have a coherent picture in Q also.
1 Quicken Deluxe and higher: Choose Tax menu > Tax Activities > Set Up Paycheck. Quicken Basic: Choose Cash Flow menu > Banking Activities > Set Up Paycheck.
Though you'd like to create an invoice for each paycheck you shouldn't. You're not an independent contractor WRT this particular temp agency and this particular job - you're an employee! That's what a W2 is. Employee's don't bill via an invoice to their employers. This temp agency is your employer - temporarily - and will take out taxes and issue a W4 at the end of the year (provided you make over a certain amount). As such you should use the "I'm an employee and I enter my paychecks..." wizard for this job.
The question of "who is an employee" is a complex one and probably causes more arguments between taxpayers and the IRS than any other. :>(
The question is complex enough that it's entirely possible that you and your client may have different interpretations of the rules and may come to opposite conclusions on the matter.
Please don't wait until year-end. Discuss this with your CPA now. The mechanics of handling in Quicken are easy enough. (As the others suggested, just use the paycheck wizard for checks from this client.) But the implications of employee status versus independent contractor go far beyond recording the payments.
In addition to income tax, your "employer" will hold out social security tax (FICA). Depending on the laws where you live, other withholdings will probably be required for state taxes, and perhaps there will be other items, like medical insurance or a pension plan. Usually, it is the "employer" who has the most at risk for improperly classifying as an independent contractor someone who really is an employee. An employer who fails to withhold is subject to penalties, even if the failure was due to a good faith belief that the employee was a contractor, so you can't blame your client for bending over backwards on this matter. There also are serious questions as to workers compensation claims and public liability for acts of an improperly-classified employee.
But, assuming that all these questions can be resolved (and that your CPA agrees), just record your paychecks as paychecks in Quicken. When you do your income tax return, omit this gross salary from your Schedule C and include it instead on Line 7 of page 1 of your 1040. And, on Schedule SE, where you calculate your Self-Employment Tax, adjust the withholding limit to reflect the amount of income that was NOT from self-employment, so that you don't pay FICA 3 times on it (your share via withholding, plus your share again via SE tax, plus your matching share as your own employer).
When I was in practice 30 years ago, we often had clients with situations like yours. Doctors, for example, might draw a salary for part-time work in an emergency room or clinic. They considered such work as simply a part of their medical practice, and we (their CPAs) agreed with that interpretation. We would include their gross pay in gross receipts on their Schedule C:. Then we would find - or create - a line to reduce the gross receipts by that amount, which we would then report on Line 7 as Wages, Salary, Tips, etc. This treatment worked well back then, but I've been retired for about 15 years and I don't know if it is still acceptable. So be sure to get the current information from your own CPA.
If you find that my advice is no longer correct, please post back and let us all know. (Remember: In a newsgroup, we all learn from each other.)
Thanks to the three of you. I think I know what to do, that is, run these through as what they simply are, paychecks. It does make sense that I need to keep this project out of the invoices realm because in fact it's not an invoice. Just breaking years of habit...I've called my cpa re this, but have not heard back yet, I think it's the post-April 15 syndrome. If I find out anything interesting I'll post back here.
I am clear that in this case I'm an employee of a temp agency that the main company uses for these sorts of situations. I'm sure that the main company is doing this because it's a sure protection against some confusion re am I an empplyee or not. I just meant that some of the details of how this plays out with taxes are fuzzy to me, but that my tax person will be able to sort it out. IE not problematic. The rundown you've written out, how to deal with FICA etc, that's very valuable, I'll make sure my accoutnant sees that.
I've not entered any of the 'paychecks' into quicken yet, but I'm going to assume that the end result is going to be that I just can't make this 'employee' income an integral part of my regular invoiced income. I'll just have two distinct revenue streams. No problem in that, just something new.
Yes you will have 2 distinct revenue streams that will be treated differently on your income tax return. As long as you enter your gross income less the deductions that result in a net paycheck into quicken correctly everything will be okay. Next January you will get a W-4 that will show your gross income as well as the various deductions. As long as you entered everything in correctly they will match quicken.
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