Independent Contract Pilots and the IRS

[Ultraman]

Did anyone read the article in Aviation International News regarding the IRS's view of contract crews?

Basically it said that, according to the IRS, there is no such thing as a contract pilot (or crew), because the company using the contract person is dictating to that person how his/her job is to be done (when they are going to fly, which airplane is to be flown, where they are going, etc.,) and therefore, is considered either a full- or part-time employee of the company.

Thus, the company is then responsible for withholding federal taxes, unemployment, Social Security, and Medicare.

Was anyone aware of this? As a contract pilot I was shocked (although I shouldn't have been--it is the IRS, after all)!

Ultraman

 

[cargoflyr69]

Somethign similar happend to me a few years back when I was CFI-ing. My flight school did not "hire us" we were all contractor employees (i think it saved on insurance for the owner) We got paid by the hour flown on a 1099 form. The IRS considered me "self-employed" that year and I had to pay social sec, medicare, state and federal taxes on my own. Thank god I was in the small tax bracket cuz it was still a big check i had to write uncle sam!

Hope that helps in your situation.

 

[some_dude]

I noticed that the main source for that article was a person who runs an employment service for contract pilots. The theory is that the company pays the employment service (a corporation), which then pays the contract pilot and there are no issues.

Of course, you can easily create your own corporation or LLC for a few hundred dollars and solve the problem on your own. That's what I did.

Having business cards, multiple customers, etc. all add legitimacy to your argument that you are an independent contract pilot.

 

[xdrvr]

That's pretty informative... anything to get away from having to take the money as s/e and paying the taxes myself. FYI under that premise you could include the money as misc inc --- and write your business expenses off via sched a or c depending on what expenses you have .. The llc is a great idea, but its a lot of paper work if you're just p/t contract trips here and there

 

[Flyboyz]

Guys, Guys, Guys, Guys. I do not know what the issue is here. Whether you are self employed or work for someone we all pay into social security and medicaire which is 7.65%. However, if you are employed through someone they will pay the match which is an additional 7.65% to medicaire/social security. A total of 15.3% into social security.

If you are a self employed individual you will pay the entire 15.3% of your net into social security yourself.

So I do not understand what the difference here is to the IRS. They get the same amount either way.

Now you can form a corporation or LLC but this is only to be able to have some flexibility on how you want to derive your income from your corporation and possibly have some additional tax savings. But if you are self employed you will always pay the 15.3% self employment tax on your net income.

 

[HMR]

On the advice of my accountant I started an LLC for the little bit of contract flying I do. I don't understand how it all works but I end up with quite a bit more spendable (uh, I mean "save-able") income at the end of the year. The tax advantages were significant for me. YMMV.

 

[dragland]

I set up my LLC to "protect my assets" in case I auger one in the ground and someone tries to come after my wife. Who knows if would work, but my lawyer said it does disassociate things like a house and makes it tougher for someone who is suing to get any personal things. In theory all they can get is what money is in the business account and whatever assets the company owns. Also makes it easier to write off aviation related items, or at least justify them.

 

[mavericks]

I believe the big issue the article was trying to get across was the companies liability. The article stated that not only were there tax concerns for the company, but also some labor laws to be concerned about.

 

[WhiteCloud]

I believe the big issue the article was trying to get across was the companies liability.

Even with an LLC a contract pilot should be a named insured on the airplane/company's insurance policy. Problem with getting your name on the policy=don't go.