Introduction
Tim O’Shea is employed full-time at Everett High School in Everett, Massachusetts, where he performs his duty as the Director of Security. Simultaneously, he works as a part-time detail police officer. At his main workplace, Tim O’Shea earned $110,000 during the last year, whereas his annual part-time salary amounted to $32,000 without any payroll or income taxes. Tim O’Shea is to purchase $4,000-worth of safety equipment, but he is not reimbursed for that. The purpose of the investigation is to determine whether Tim O’Shea’s part-time activities are eligible for self-employment taxation.
Research Issue
Is the case of Tim O’Shea to be treated as one of an employee or an independent contractor, thus being reviewed in compliance with the self-employed taxation law?
Law and Analysis
In order to proceed with projected tax calculations, it is required to determine whether the part-time duties carried out by Tim O’Shea fall into the self-employment category as per the United States legislation. The U.S. Internal Revenue Service (IRS) provides comprehensive guidelines in order to determine whether an individual can be considered an employee or an independent contractor in such borderline cases (IRS, 2021). According to the understanding of the IRS, an independent contractor exercises a considerable degree of control over their schedule and workload. In addition, sole proprietors are not reimbursed for any investments they make to ensure their professional operations. However, self-employment taxation law does not apply to the cases when the person in question if another party has the right to control the individual’s services, i.e., an employer-employee relationship exists (IRS, 2021). Tim O’Shea reports a considerable amount of professional freedom in the context of his part-time work, as he is entitled to decide whether or not to accept a particular detail based on his schedule. Furthermore, he is not reimbursed for the expenses on his professional activities as a detail officer.
Based on the presented information, the IRS is to consider Tim O’Shea as an independent contractor. Therefore, federal law requires him to file Schedule SE in regards to the self-employment earning and tax calculations. The case of Tim O’Shea intersects with Tracy Lee Milian v. Commissioner. The investigation ruled that Milian failed to report the earnings in the amount of $2,198, which were subject to self-employment tax as per sections 1401-1402 of the Internal Revenue Code. While the petitioner also used uniform and specialized equipment, the earnings were administered separately after each entity and never reported to the Department. A similar context is observed in the case of Tim O’Shea, making it impossible to establish an employer-employee relationship. Section 1401 of the U.S. Code determines the tax rate be paid, including social security and Medicare taxes. Accordingly, Tim O’Shea is eligible for a tax in the amount of 2.9 percent of the annual self-employment earnings. An additional 0.9-percent self-employment tax is applied in the cases when the income exceeds $200,000 for unmarried individuals, meaning that Tim O’Shea is not eligible for this subsection of the U.S. Code.
Conclusions
Based on the nature of the part-time professional activities executed by Tim O’Shea, it is possible to conclude that they fall into the category of independent contractor work as per the U.S. tax legislation. Tim O’Shea works as a detail police officer at the time, which is not occupied by his primary professional duties at Everett High School. Moreover, he purchases the required safety equipment at his own expense without reimbursement. Considering the degree of control and the lack of an employer-employee relationship within Tim O’Shea’s part-time work, these activities are to be deemed self-employment. Therefore, he is eligible for the self-employment tax imposed by the IRS in the amount of $928.
Reference
Internal Revenue Service. (2021). Self-employed individuals tax center. Web.