Tax liabilities/benefits of paying a telemarketer?

[Guest]

I was a captive agent with Northwestern Mutual for about 13 yrs. I was a "statutory employee" and received W-2's, with FICA withheld (and paid by them), but not income taxes withheld. I also filed Schedule C and deducted business expenses. I also did brokerage work for about a dozen other companies, all of whom paid me via 1099's. I filed a second Schedule C for that income. My accountant pro-rated by business expenses and divided them between the two Schedule C's.

I had numerous marketing expenses over the years (leads, telemarketers, etc.), which I was able to deduct, proportionately, from each Schedule C. You can certainly deduct the cost of your telemarketer as a business expense and pay her via 1099. As long as you are not dictating precisely how/when she is doing the calling for you and is using her own equipment and working out of her own office/home, you should be okay about her not having to be classified as an employee (and putting you on the hook tax-wise as her employer).

But...since she's a licensed agent, if I were you, I'd probably just put her down as a commissoin split, say 5% or less, if your company allows it. That way, you don't need to reflect your relationship on your tax return in any way (coz you're not paying her). That gives her more of an interest in your success, which should be a better motivator than paying her a fixed amt per appt set.

I'd suggest that you look around for a good CPA to do your taxes and give you tax advice throughout the year about these kinds of things. I had one the whole time I was in commissioned sales and thought he was worth every penny. (Am a salaried employee now and don't sell anything, so no need for him anymore.)

Good luck to you!

 

[arnguy]

Al3, InsuranceConsultant gave a real-life example of "statutory employee." Par. 1195 of the CCH 2007 Federal Compliance Manual gives a succint explanation. It states that such employees may deduct their unreimbursed business expenses from gross income [Rev. Rul. 90-93, 1990-2 CB33]. It also indicates the employer should check the appropriate box on Form W-2 indicating the employee is a "statutory employee." These employees report their wages on and claim their business expenses on Schedule C Schedule C-EZ of Form 1040. Full-time life insurance salespersons, certain agent or commission drivers and traveling salespeople, and certain homeworkers are deemed statutory employees and "are not liable for self-employment tax, because their employers are obligated to treat such individuals as employees for social security purposes." The definition is stated in IRC Sec. 3121(d)(3). Full-time life insurance salesman is cited in IRC Sec. 3121(d)(3)(B).

In plain English it means that certain classes of employees are defined by statute. I hope this post and that of InsuranceConsultant make it perfectly clear. YMMV.