wmuflyboy

So you are saying that all the FBOs that charge $35/hr for instruction are cheating on their taxes and screwing their employees if the employee is not making $35/hr also?? Wouldnt there be no FBOs in business if everybody knows about this???

ryan1234

That is a really weird question. FBO's can charge whatever they want for instruction if the instructor is on the payroll as an employee and they also can pay the employee whatever. If the instructor is an independent contractor he/or she will need to set the price for that given service (i.e. instruction) and receive all of it. If an FBO is charging $35/hr for instruction (i.e service) and giving the contractor a set rate of let's say $20/hr - that is illegal according to the IRS, whether they remain in business is not a question as many illegal practices go on everyday. If the FBO rents the aircraft only, their profit would come from the aircraft rental, not an extra part of instruction.

joepilot

No, not at all. The FBO can charge the customer as much as it likes, and pay its instructors as little as they will accept. However, if a business has employees, that business is required by the IRS to withhold the employees portion of social security and medicare taxes, and then pay a matching amount as the employers share, and send it to the government. They are also required to pay unemployment taxes and usually workers compensation insurance. States also collect taxes or fees from employers based at least partly of wages paid. Employers like to pretend that their employees are independant contractors to get out of these extra expenses and paperwork. When the IRS notices that workers have been misclassified they go after the employer for back employment taxes, penalties, and interest. However, they have to notice first. Many employers get away with this scam for years, and sometimes forever.

There is a long checklist of things that the IRS uses to determine whether or not someone is an independant contractor, some of which were mentioned earlier is this thread.

If the flight instructor collected all the money that was charged for flight instruction, then that would be one data point on the checklist saying that he might be an independant contractor.

If the student is charged a combined rate for dual flight instruction, and pays with a rubber check, does the flight instructor get his pay docked for the amount attributable to the flight instruction? If so, this would indicate independant contractor status. If the boss eats this kind of loss, then probably an employee.

Joe

WBTax

As far as you are concerned right now, you are being treated as an independent contractor and you will fill out Sched C at the end of the year. If you believe that you SHOULD be an employee and the employer is treating you wrong, you can "turn in" the offender to the IRS and they will make a determination of contractor/employee status. Keep in mind, however, that if it is a small company, they will likely find out who turned them in. The IRS has actually created a form you can attach to your return so that you can do the reporting easily.

There are advantages and disadvantages to being contract.

Cons: Double the Social Security & Medicare Tax (Extra 7.65%)
Pros: Taxes are computed AFTER deducting allowable expenses.
You can possibly put away more for retirement, too using SEPs or Solo-401ks.

The expense side though....watch out for incredible deductions! Watch out for unscrupulous preparers. Expenses need to be ORDINARY and NECESSARY for that particular job. You can't deduct pilot socks and underwear! You can deduct other expenses, but only in proportion to your contract job versus your day job. (Example: You for XYZ Airlines and get a W-2. You sideline for DEF as a contractor training other pilots. You earn $30K from XYZ and $10K from DEF. You can deduct 25% of your pilot's license, sunglasses, caps, etc from the DEF contract position on Sched C; the other 75% can be deducted as a Misc Unreimbursed expense on Sch A, but subject to a reduction.)

R Klein, EA

(I am a federally licensed tax specialist).