FedEx Freight lawsuit?

[dvalleyjim]

Are we not talking about two seperate pieces of litigation? One involving FedEx Freight and the other the proposed settlement involving California Ground contractors?AS for the ground settlement the guys who are to receive money will almost certainly be subject to backup tax withholding. If paid all in one year, the tax bite will be huge. About the only thing they can hope for is that the IRS or tax court will agree that the pay out should be based on and spread out over the years the law suit covered. I hope those guys out in California are perceptive enough to realize the tax implications are can get themselves set up in the most advantageous way possible. But no some will still take the money squander it on the next instant gratification never realizing for even a moment that it's taxable income and as a result come away in even worse shape than before.

No dude, we are dumb ground guys that ran our own business and paid taxes. We don't know all this stuff you know.

 

[dvalleyjim]

In which case they never should have been contractors in the first place.

So if the courts found that they were in fact employees, couldn't the IRS step in and take their cut before he foreign the payments are dispersed or require X to withhold applicable taxes?

I will get a 1099 on the payment. Then I will have to claim it as income. Can I defer it over 5 years. Don't know. That's why we use accountants. My accountant is also a tax lawyer. How about yours.

 

[bacha29]

I hope that the IRS will notify the recipient that their payment is subject to backup witholding meaning that they may take a slice right out of the settlement. Here is where there may be trouble. They will probably get a lump sum but some of that money will no doubt be a reimbursemnt for employer taxes such the employer share of Social Security, Medicare etc, that the contractor had to pay for the years in question when X claimed they were contractors something that will be complicated if they are given a lump sum rather than itemized. What those guys in California need to do is to obtain their tax returns for the years in question in order to verify their incomes and tax liabilities for the years in question which an eye toward amending their returns for the years in question and the lump sum prorated rather than the worst thing that could happen and that would be for the entire amount taxed as ordinary income in just one year at the tax rate for that level of income somewhere in the area of 39%.

 

[bacha29]

In keeping with what dvalleyjim said. It is very important that the person hired to represent the contractor in these matters is also an enrolled agent better known as a " Treasury Card" holder. The person who has a treasury card is empowered to practice directly in front of the IRS. Since we all know that Fedex is not going to handle this matter in a way that will minimize the tax burden for the contractor. In any event the task before the contractor and their tax rep is to gather as much evidence as possible in order to prove to the best extent possible that the largest possible portion of the settlement was simply a reimbursement of taxes that should have been paid by X rather than the contractor and that this practice had been occuring in error for nearly a decade as the courts have ruled because the contractor was wrongly classified as an independent contractor. So get ready for a fight now because it might just save you thousands in taxes you should not have to pay.

 

[bbsam]

I will get a 1099 on the payment. Then I will have to claim it as income. Can I defer it over 5 years. Don't know. That's why we use accountants. My accountant is also a tax lawyer. How about yours.

Why would they 1099 an employee?

 

[M I Indy]

Why would they 1099 an employee?[/QUOTE

Umm...they still disagree with the decision? Ha-ha!

 

[Bounty]

Why would they 1099 an employee?

X has been doing it for years

 

[bbsam]

X has been doing it for years

So is the court by agreeing to the settlement being paid in such a manner in effect agreeing with the model?

 

[bbsam]

Does the court have to approve the settlement?

 

[bacha29]

Remember that the California settlement is only a proposed settlement. Yes, the court does have to approve it . And yes, expect to get a 1099 dumped in your lap as evidence that X did pay it and this amount is you share and if on a 1099 it's 100% taxable unless proven otherwise. So CA get your records together and get ready to go to tax court because X will not assist you in a manner.