Hiring employees, payroll, withholding taxes

9 Replies

If you have a rental property and hire an on-site Manager do you still have to have them fill out a W4 and I-9, with hold their income and deposit to the IRS? Also make social security payments and Medicare tax payments to the IRS?

If they are your employee, yes, all those things.  Possibly state taxes and workmans comp, too.

If you're contracting a property management company, then the PM company would deal with all that stuff.

@Jon Holdman thank you! And do you recommend Quick Books online to help me get all that going? I’m not very knowledgeable on taxes and pay roll lol. 

Sorry, no recommendations for software.  If I was going to set this up I'd probably look into some "software as a service" company that was a step up from Quick Books.

Gulliver,

If you plan to hire this person as a W2 employee read Circular E - Employers Tax Guide published by the IRS. It tells you everything you need to know and will really help you understand the payroll process. Keep in mind your state will also have it's own reporting and withholding requirements. This is something you can learn yourself with a little effort and save some money by not hiring a payroll company. I would not pay for a payroll software either if you only have one employee. 

Let me know if you have any further questions,

Matthew Cuff, CPA

Doing it under the table is not tax deductible and illegal. Dont recommend that.

You can do a 1099 if you choose. Would need more information to make a recommendation if that is better than a w2

I think I’ll go with the 1099. Less hoops to jump through and cheaper. I may change it to W4 route later on. But for now I’ll do it this way. 

@Matthew T Cuff

Minor aside. No, do NOT read the Circular E, as was suggested. It was not designed to be read by humans, only by self-loathing accountants, and only as a punishment for missing a question on the CPA exam. If you really want to understand payroll - read blogs from the payroll providers. Those are written in English. At least sometimes.

W2 employee v 1099 contractor is not quite your choice, really. It's a matter of law. By law, if you exercise day-to-day control over how this person does his job - he is your W2 employee. No matter if he is part-time or full-time. If, on the other hand, he has discretion over his job, i.e. you basically tell him: do whatever needed, as long as the rent is paid and the property is in good shape - then he is a 1099 contractor. 

The reality is often somewhere in between, which is the beauty and the nightmare of the tax law.

Keep in mind that 1099 is always cheaper/simpler for you, but W2 is always better for the worker. Many reasons for that.

"Under the table" is an awful choice, also for many reasons, including it being illegal.

If you decide to hire an employee, there are plenty of online payroll companies that make deducting taxes easy for you (since they do it for you). I personally use paylocity and it has worked out great. 

1099ing employees rather than paying all the employment taxes can also get you into trouble as 1099s are meant for contract work. If the person is required to work at your office everyday and doesn't have any other clients there is a good chance they shouldn't be 1099ed. I would pay the additional taxes to avoid a potentially costlier problem down the road. 

Join the Largest Real Estate Investing Community

Basic membership is free, forever.