Fight back!

The California legislature is proposing to force those making payments to independent contractors to withhold 3%. I know that CA is in a budget crisis, but singling out independent contractors is unfair and is only a bandage, ignoring the real problem. The legislature needs to address the systematic problems in California’s budgeting process.

Here are the details that were sent to me.

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 independent contractor withholding proposal.

Contact your Assembly representative.

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.