C.A.R. OPPOSES Proposal to
Force Independent Contractors
to Make Interest-free Loans to the State!
The Vote May be TODAY!
Please Call Your Assembly Member NOW!
C.A.R. is opposing a proposal to force those making payments to independent contractors to withhold 3%. This provision was included in a budget gap proposal approved last month by a Budget Conference committee in the California legislature. C.A.R. opposes this FORCED OVER WITHHOLDING because it unfairly singles out independent contractors to shoulder the burden of the state’s budget troubles and because it fails to address systematic problems in California’s budgeting process.
Here’s how the proposal would work:
When an agent closes a transaction, they are typically paid their commission by their broker. Now, the broker would need to withhold 3% of the commission and pay it to the Franchise Tax Board (FTB). Agents would still pay their normal quarterly estimated income tax payments to the FTB IN ADDITION TO THE AMOUNT WITHHELD BY THE BROKER. When the agent files their state income tax return the following April, they will deduct the withholdings along with the quarterly estimated tax payments from their tax liability and, in theory, receive a refund for the 3% that was withheld. This allows California to earn interest on your money!
And even after independent contractors file their state taxes next year, there's no guarantee the state will have the money to repay these loans. Right now taxpayers who are owed refunds are receiving IOUs instead of checks .
Action Item
Call Assembly Member Bonnie Lowenthal
At 1-800-672-3135 and
Enter your PIN number -- 151500151.
Tell him or her that you OPPOSE the independent contractor withholding proposal and to please work to keep it out of the next version of the state budget.
Please note: if you live in an area represented by Democratic legislators in both the Assembly and the state Senate, you will receive TWO Red Alerts. Please respond to BOTH of them to contact both your Assemby Member and your State Senator.
Background
In the last few weeks, the Assembly and the Senate have both approved two versions of this proposal in one of the many pieces of legislation comprising the budget. However, Governor Schwarzenegger is planning to veto both sets of bills. The Legislature will need to send him new versions of the budget in order to end the stalemate.
Our goal is make sure the next version of the state budget DOES NOT INCLUDE THE INEDEPENDENT CONTRACTOR WITHHOLDING PROPOSAL.
Talking Points
While it is understood that the state is facing a substantial budget gap, increasing withholding on payments to independent contractors should NOT be one of the ways that the budget gap is addressed. Among the arguments against this proposal:
There is no evidence that independent contractors are failing to pay their income tax obligations. The proposed withholding requirement is merely intended to accelerate income tax payments so that the state can make money from the “float” that’s earned while the funds are in its possession.
It creates significant administrative burdens for individuals that are now required to file 1099MISC information reports with the Franchise Tax Board. Under the proposal these individuals would now need to also calculate the required withholding amount and remit that amount to the state.
There will be significant administrative costs to the Franchise Tax Board that will be faced with making refunds to those independent contractors whose withholding amount remitted to the state exceeds their income tax obligation.
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