A payroll just taxed my kit rental fee. Is this correct?

[José]

I just got my paycheck for a shoot I did two weeks back, but for first time for me, my kit rental got lumped together with my day rate. And the payroll company (CAPS, LLC Payroll service) taxed my kit rental in the process. Usually, when I work on a production that receives W-4s, my kit fee is paid nontaxed separately while my dayrate gets the usual taxes deducted.

So is this incorrect, or is the payroll company allowed to do that?

[Eric Toline]

I just got my paycheck for a shoot I did two weeks back, but for the first time I ever seen, my kit rental got lumped together with my day rate. And the payroll company (CAPS, LLC Payroll service) taxed my kit rental in the process. Usually, when I work on a production that receives W-4s, my kit fee is paid nontaxed separately while my dayrate gets the usual taxes deducted.

So is this incorrect, or is the payroll company allowed to do that?

Did you invoice for your kit seperately? If not your kit & labor get lumped together. Contact CAPS and see if you can get it squared away.

Eric

[Marc Hoppe]

I've been on a show now for a few months where we just sorted this stuff out. For some reason, our box rentals were taxed for the first 4 weeks, regardless of what we said or where we inputted figures. Now, the dollar amount seems right, but it still mentions that the box rental is subject to FIT.

Either way, I've lost out on a lot of $$$ due to someone's oversight, and it's been a real beast trying to correct it.

Marc

[José]

Hey Marc!

I just got off the phone with the payroll service. And according to one of their accountants, my mistake was that I did not estimate price value toward the gear. And that is why it was considered taxable. In any case, my check can't be reversed, but the correction can be made for future checks.

Talk to the payroll service instead of production and see if it can get fixed that way.

[RPSharman]

Rental income is taxable, so one way or another it's going to be taxed.

But some payroll taxes are not applicable to rental income, like Medicare and such.

[José]

Yeah, my kit was hit for Medicare as well as FICA tax on this check.

[stacysound]

IF they payed half of SS (thinking it labor) let it ride.

[pierrek]

Hi all. Does anyone know where I can find a reference in the tax code to the non-taxable (except for SS and medicare) kit fee ? My CPA doesn't know!

[PMC]

Get a different CPA.

 

It really depends on how your company is setup. Are you a Sole Proprietor, LLC, S-Corp., Self-employed, on a time card payroll, etc. This will determine at what point tax is collected and on what services and gear.

 

If you are self-employed then you should be filing form 1040 sch. C (business income) along with form 1040, 1040 sch. A and maybe B and of course your depreciation schedules for your business vehicle, building, home office and gear unless you '179' all of your gear purchases.

 

Is income from labor and gear taxable as it pertains to FICA? Yes. It is federal payroll tax on earned income. It is reported on schedule SE (SECA) for self-employed individuals. BUT reported differently for the many different types of corporations. And reported on a time card if a payroll company is paying you.

 

When payroll pays you the employer and you split the cost of these taxes. When you are self-employed you pay it all on Form SE but then can get back some credit on a different form.

 

I rarely put my gear rental and never my expenses on a time card job. I send an invoice for those items because at tax time you have to circle back and make sure you take credit for the taxes you paid on a time card and don't double report them via a 1099-misc or 1099-NEC or via entering them when you calculate adding raw invoices - whichever way your accounting method is setup. Plus payroll companies are notorious for calculating withholding taxes on your expenses. They are not taxable. You already paid the tax on expenses when you purchased them for use.

 

Income from 9v & AA batts, adhesives, mileage reimbursement, fuel, meals, hotel, etc. Those are reported on 1040 sch. C as expenses. 

 

People exempt from FICA, SS tax are some students, nonresident aliens and clergy. There might be more. But again, the IRS doesn't care whether your income is from labor or use of your owned gear. They are going to carve out a portion.

 

Medicare is a different beast and may be exempt from tax on gear. Depends on your accounting methods. 

 

In Iowa, professional services are exempt from sales tax. I pay no sales tax on my labor and gear used during my labor because I am a cog in a larger production that is making the finished product. Thank balls we don't have a Value Added Tax like they do accross the pond. If I was a professional photographer 'handing' a finished photograph to a customer then I would have to collect and pay sales tax.

 

Next seminar begins at 6:30am, lol.

 

I am not an accountant but many years ago I realized I knew more than my CPA did concerning our industry, small business investment tax credits and the like. Plus, one year she screwed up one of my filings and was unapologetic about it. But I forced her to pay the fine and interest.

 

You can search on the internet for "who/what is exempt from medicare tax" and "FICA." SS tax is included in FICA.

[PMC]

Upon reading an IRS publication at 

https://www.irs.gov/businesses/small-businesses-self-employed/questions-and-answers-for-the-additional-medicare-tax

 

I see that, "Medicare Tax applies to wages, railroad retirement (RRTA) compensation, and self-employment income over certain thresholds. 

 

Business expense (gear rental) from self-employed income does not constitute an exemption from Medicare tax.

 

Equipment Used in Production: In some cases, equipment used in production may be exempt from sales tax if purchased for resale or used directly and predominantly in production (e.g., machinery, materials, and supplies). Again, this exemption is specific to sales tax and does not apply to Medicare tax."

 

That is some of what the IRS has to say.

[JonG]

You should really stop referring to your equipment rental as a kit or a box. That is incorrect terminology, and you may get taxed if you call it that. Also production insurance might not cover your equipment if you call it anything but an equipment rental. 

[Jeff Wexler]

My only experience with this was in 1988 I was audited for the first time by the State of California where they claimed I had failed to sales tax to the State for my equipment rental. With a lot of back and forth I explained that I did not charge sales tax on my rental to production companies because they just would not pay it. Well, you still owe it to us (and it was a lot of money). Finally it was explained to me that if I paid sales tax on my purchase of the equipment I had put into my rental inventory, I did not need to charge and collect when I rented it out. So, that 's what I did  --  paid sales tax on all of my purchases.  All of this requires of course the golden rule which is never refer to the equipment as kit rental or box rental and keep it as far away from any money you receive for your services. The rental of equipment is its own standalone business and you need to run it that way.