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I'm a programmer and I've been working at my current freelance gig for a few months now. They pay me hourly and ranges from 20-40 hours a week. The checks I've been receiving have taxes deducted already and its about 40% of my paycheck.

Other notes:

  • I have an LLC that is under my name and filed with my 1040 at end of year.
  • The current job has my SS# down on file instead of my LLC's EIN number.
  • My LLC is basically a computer repair shop + web design shop. So I buy alot of inventory throughout the year for R&D and to do repairs.

My question now is:

  • Since the gig i'm at now is paying to my SS#, thats the same as paying to my LLC right? since I file under the same document when I do my 1040.

  • I've freelanced at previous companies before and they usually pay me in full 100% of my paycheck and then I pay the taxes at the end of the year. I asked this place to pay me in full instead of deducting the taxes up front and they wont do it. What advantage does this have for both parties? It seems like I'm paying ALOT in taxes as I'm getting hit at the highest rate.

  • I'm your basic computer guy that can fix hardware and do software. It's okay to buy a bunch of hardware to do R&D and write it off as expenses right?

  • They issued me a W9 in the beginning. Thats just used for collecting my SS# right? Was I supposed to put my LLC's EIN number there? And this W9 just becomes a 1099 at the end of year?

  • How can I not get my taxes deducted up front?

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    When you receive your check is there a paystub itemizing the taxes being withheld?
    – quid
    Commented Dec 22, 2014 at 18:44

2 Answers 2

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It seems that you think you are freelancing, and they think you are an employee. What's bad for you, the tax office will also think you are an employee if they withhold tax for you. Alternatively, they think you are stupid, and they keep the money, but are actually not paying it to the tax office at all, in which case you will have a bad surprise when you do your tax returns.

First, I'd ask them for proof that they are indeed paying these taxes into some account related to you. I'd then ask a tax adviser for some serious advice. If they are acting out of incompetence and not out of malice, then you should be mostly fine, but your work there will count as employment.

Heaven knows why they treat you as an employee. Check your contract with them; whether it is between you and them or your company and them. It maybe that they never hired a contractor and believe that they have to pay employment tax. They don't. If your company sends them a bill, then they need to pay that bill, 100% of it, and that's it. Taxes are fully your business and your responsibility. As "quid" said, if they say they are withholding tax, then at the very least there must be a paystub that proves they have actually been paying these taxes. If they withhold taxes, and there is no paystub, then this looks like a criminal attempt to cheat you.

If they have actually paid taxes properly into your account, then they are merely creating a mess that can hopefully be fixed. But it is probably complicated enough that you need a tax advisor, even if you had none before, since instead of paying to your company, they paid some money to the company, and some to you personally.

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  • but the thing is that i work offsite at my own office space under my LLC. so your saying I should ask them not to withhold my tax and just pay my company up front?
    – Patoshi パトシ
    Commented Dec 22, 2014 at 18:13
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Maybe I can explain a little clearer: Your LLC is not a person, and cannot have taxes withheld on its behalf. Therefore, anyone paying your company should not withhold taxes. If they are paying you directly, and withholding taxes, they are treating you as an employee, and will probably issue a W2 instead of a 1099.

Put it this way: Your LLC is a separate company providing services to that company. They shouldn't withhold taxes any more than they would when paying their ISP, or power company.

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  • i just spoke with the HR manager and said they only do W2 and I am considered a employee and taxes have to be withheld. The thing is how does this work with my LLC? I use the 1099 corp-2-corp loophole to write off my expenses as a freelancer, but i'm not getting a 1099 now. I'm not sure how to go about this weird scenario i'm in now.
    – Patoshi パトシ
    Commented Dec 22, 2014 at 20:57
  • Talk to a tax advisor but what it basically means is they hired you as an employee, you're not a contractor at all right now, and your llc wasn't involved. I don't know how your loophole works but you probably can't use it
    – Yamikuronue
    Commented Dec 22, 2014 at 21:01
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    what did the contract you signed say?
    – Pepone
    Commented Dec 23, 2014 at 0:03
  • Well, they think you are an employee. You think you are a contractor. What does your contract say?
    – gnasher729
    Commented Dec 23, 2014 at 1:31

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