Are any of you getting workers compensation coverage? If so, have you any experience with claims?
TIA
Z
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Are any of you getting workers compensation coverage? If so, have you any experience with claims?
TIA
Z
I have never seen a dancer file a claim but I don't imagine that an insurance company wouldn't cover any dancer. However, insurance companies do charge clubs for worker's comp indirectly even if they are independent contractors (probably in case a court ever enforced a claim by a dancer).
I would think that as a business they would have to cover anybody that got hurt at their establishment. Definately something worth asking the management.
Maybe I wasn't completely clear. California passed a law last year that made dancers presumptively statutory employees. As such, they should be entitled to workers compensation coverage. I am curious if anyone knows if they are actually being covered, and if they are covered has anyone made a claim and how was that handled.
Zofia, from what I'm hearing the California chain clubs are basically ignoring the new law, having provided independent contractor 1099's for girls who danced in California clubs last year (without the statutory employee box checked). With California facing a 36 Billion state budget deficit this year, this whole situation in regard to the state of California collecting workmen's comp money from the clubowners and collecting statutory employee income taxes from the dancers appears to be ready to blow up in everybody's face in California with the first test case. One comp claim or one income tax audit should light the fuse! Can you imagine California clubowners reactions when they get a bill from the State of California for $100,000-200,000+ in unpaid workmen's comp coverage payments for their "statutory employees" ?
But I'm just as worried for California dancers who may get a tax bill as all of the girls' stage fees, tipouts etc. are declared to be non-deductible, disallowed employee business expenses, and taxable income instead. Not to scare anybody, but consider that a typical dancer might be dealing with $50 a night , 5 nights a week for say 40 weeks = $ 10,000 in additional taxable income, which could result in a surprise tax bill for another $2,000-$3,000 plus penalties ! Compared to the State of California having to lay off teachers and police, or having to raise property or income tax rates on every registered voter in the state, I would say it's a pretty safe bet that some accountant in the Cal Tax Dep't will figure out that collecting an extra $100,000-$200,000 from each California club in comp insurance money and collecting $2,000-$3,000 in income tax from each of the 10,000 California dancers is a much more politically acceptable option.
Sapphire, under the comp statute, a retaliatory discharge is illegal. That's not to say it doesn't happen, but it can be a major problem for the employer.
Melonie, I suspected the California clubs were doing this. I agree that the first comp claim or audit is going to open a floodgate of litigation. It's too bad that the dancers in California who are agitating for a union aren't spending more time on the comp issue. On the job injuries are really a bigger problem in the business than most people think. I don't thing the tip outs and stage fees are a big problem. Under federal law they are deductible even if you don't file a Schedule C. In California, the maximum tax rate is only 9.3% and only for incomes in excess of $38,291 for singles, $52,120 for head of household and $76,582 for married filing jointly. So if employee expenses such as tip outs and stage fees are not deductible in California, it's not a big tax.
The other big problems I see are employer liability for uncollected Social Security and Medicare taxes. California clubs could be looking at huge penalties for not withholding the various state and federal taxes. It will be interesting to see how this plays out. If I was dancing in Cali, and the club was not withholding, I'd definitely be dancing at more than one club and filing and paying estimated taxes.
not to nitpick, but check the IRS definitions of EMPLOYEE business expenses. Payments to a club are not on that list, because it is illegal for an EMPLOYER to charge an EMPLOYEE for what amounts to the right to work on his premisis. This matter has been discussed on several dancer boards, and the best definition we can come up with for the money California "employee" dancers have been spending making "illegal" payments to clubs for stage fees and tipouts is a "non-deductible charitable contribution" voluntarily paid out of dancers' earned income on which both federal and state income tax is due. A 9% state tax plus a 28% federal tax on $10,000 worth of stage fee and tipout "earnings" can add up to several grand in unexpected extra taxes, plus penalties, and possibly even a "gift tax" of 2% on top of the other taxes! I also agree that THIS YEAR's 9.3% California maximum state tax bracket isn't life or death, but we both know that next year's maximum state tax rate will have to be increased significantly to make a dent in California's 36 BILLION DOLLAR deficit. That deficit amounts to like a $ 9,000 shortfall in state revenues for every single taxpayer residing in California, and it has to come from somewhere!
I agree that the MAJOR problem will fall squarely on the head of the clubowners. It will be curious to see if locally owned California clubs attempt to pay these $100,000-$200,000+ comp bills and/or fines for not withholding SSI taxes from their "employee" dancers and not paying the 7 1/2% "employer" SSI match etc. - or whether they simply start going bankrupt. I'm sure that the corporate clubs will stay in business, but it may result in future actions like the California chain clubs retaining 100% of private dance sales and requiring the "employee" dancers to perform private dances without additional payment as a condition of their employment, to enable the clubs to cover future comp and SSI payments (with the California dancers effectively working for a $10 an hour paycheck plus tips, with full taxes withheld).
As usual, the high profile dancers' organizing effort in California, followed by the new California law supposedly granting the dancers what they were looking for, is in reality probably going to make the situation much worse off for everybody concerned except the tax collectors. I'm glad that I took my accountant's advice and steered clear of working in California clubs last year.
At any rate, with tomorrow being the tax return deadline, we shouldn't have to wait long until this matter hits the proverbial fan.
"Payments to a club are not on that list, because it is illegal for an EMPLOYER to charge an EMPLOYEE for what amounts to the right to work on his premisis."
That does not determine deductability. In fact the IRS allows this exact type of expense to be deducted on form 2106. The test for inclusion is the expense must be:
1. ordinary and necessary in that industry and
2. must be to produce or collect income.
Here tipouts are certainly ordinary and necessary in the industry and they are to produce income. Thus they are deductible. You would report them on form 2106 and form 1040 schedule A. The problem is they are limited to 2% of AGI.
Alternatively, it could be argued that the tipouts and stage fees, if they are illegal, would be theft losses.
I'm still interested in how the comp issue works out. So far only one Cali dancer has responded and she hasn't filed a comp claim. I do agree that the California dancer organizing campaign is misguided, or at best proving the law of unintended consequences.
well Zofia you may have discovered the method for California dancers to save their butts tax wise - claim all the stage fees and tipouts California clubs illegally charged them as "statutory employee" dancers as theft losses! Obviously the 2% AGI limit applying to every other type of "employee business expenses" isn't very helpful if these dancers have been paying 20% or 30% of their earnings back in stage fees and tipouts (or higher).
Wow, after reading all this, I'm so glad that I no longer work in California! However, this makes me wonder what is going to happen to all of my old dancer friends who are still working in that state. From what I've heard, most clubs in California are simply ignoring the "paid dancer employee" business and are simply charging the girls to work like they did before, and have fired the girls who have wanted a paycheck.
It should be interesting to see how things work out, but I have a feeling alot of dancers are going to be bit in the ass by the taxman really soon.
Ultimately, both the dancer disability issue and the dancer income tax issue will wind up being resolved by the court system after a claim is made or after an audit occurs and somebody appeals the result. The bad part is that these decisions could actually take a year or two to come out, meaning that dancers and clubs could wind up taking a huge hit next year or even the year after to pay two or three years of discrepancies off all at once.
Clubs could get around this issue and avoid payments in arrears by a number of methods - selling out or bankruptcy for example only to reopen under "new management" (different business entity, same personnel!). But individual dancers don't have these sort of options available and will ultimately have to live with whatever interpretation the IRS and California state tax court come up with.
After reading the posts on CA Im just wondering...do CA dancers have to file under a schedule C? or are they actually employees of the club and have the tax forms sent to them in the mail?
Asia, the problem is that nobody really knows - yet. From what I have seen of last year's new California law it would appear that they should be filing as Statutory Employees, paying estimated taxes quarterly, and filing a 1040 with Schedule C. However, from everything I have heard from California club dancers, it would appear that the California clubs are still treating them and reporting them as Independent Contractors in violation of the new California law. This is creating a huge potential time bomb in regard to California dancer income tax liability and potential retroactive tax bills.
Asia,
"After reading the posts on CA Im just wondering...do CA dancers have to file under a schedule C? or are they actually employees of the club and have the tax forms sent to them in the mail?"
Under California law there is a presumption that a dancer is an employee. This presumption does not bind the Internal Revenue service. Instead, the IRS has a three part test they apply to make that determination. The Service looks at three issues:
1. Behavioral Control,
2. Financial Control, and
3. the Type of Relationship.
From that test the Service will make its own determination on the issue of employee or independent contractor. IRS Publication 15-A, Chapter 2 goes into much more detail.
As you might expect, the IRS has a procedure for the taxpayer to request a determination of her status. That is invoked by the taxpayer filing a form SS-8. Once the SS-8 is filed, the Service will conduct an investigation and make a determination. The IRS has ruled that absent a form SS-8 request or determination, a taxpayer receiving a form 1099 Misc is presumed to be an independent contractor.
If a taxpayer receives a Form 1099 Misc, she should file a Schedule C or C EZ to report her 1099 income. That then invokes all the Schedule C deductions. It also implicates the Schedule SE self employment tax. In the alternative, the taxpayer can file a form SS-8 and request a determination. However, the taxpayer is not relieved of paying her income taxes nor her share of FICA, Medicare and Unemployment taxes. Thus, unless there is time to obtain the SS-8 determination, the taxpayer should still file her 1040 and Schedules C and SE. If the SS-8 determination comes back concluding that she is an employee, the taxpayer would then need to file an amended return seeking a refund of the overpaid SE taxes, but she would also lose her Schedule C deductions, so she may have to pay additional income taxes.
Before seeking an SS-8 determination, I would run the tax returns both ways to see what resulted in the lowest tax. Only if the SS-8 would result in a lower overall tax would I file it.
HTH
Z
Sofia is 100% correct about IRS rules. But California's state tax return requires line item entries based on similar entries made on the federal return, as do most other state tax returns. This basically means that a person must file using the same status on both the federal and state return or the state return will 'bounce". In California's current situation, this would appear to give dancers the choice of violating IRS rules by filing as Statutory Employees or of violating California law by filing as Independent Contractors. This will undoubtedly result in a huge mess in the tax courts after the first audits take place, which have the potential for bringing every California dancer's tax return under scrutiny.
"In California's current situation, this would appear to give dancers the choice of violating IRS rules by filing as Statutory Employees or of violating California law by filing as Independent Contractors."
Actually, it is not the dancer who violates the law. The statute applies to employers. The California Franchise Tax Board follows the federal approach and treats the 1099 as dispositive of the taxpayer's status absent a determination to the contrary.
It could well be argued that a state law which specifically defines dancers' employment status as that of a 'statutory employee' constitutes a pretty solid determination to the contrary, for the Cal FTB as well as the IRS! I would wager that this very point is being discussed in back rooms of Sacramento government buildings right now. I would like to feel confident enough about the IRS sticking to their own rules and ignoring state laws that I could look upon this risk as being minimal, so that I could justify working in California again. But after seeing how California got the Feds involved during the electricity crisis to act on their bahalf, and seeing as how California is now facing a state budget deficit even bigger than the 36 BILLION they originally projected (with many other states in the same boat), I have to admit that having confidence in the IRS allowing tens of thousands of dancers to continue paying taxes at a lower rate just does not compute.
"I would like to feel confident enough about the IRS sticking to their own rules and ignoring state laws..."
The supremacy clause of the Constitution should resolve that doubt for you. In fact, federal law requires the IRS to adhere to Publication 15-A.
"I have to admit that having confidence in the IRS allowing tens of thousands of dancers to continue paying taxes at a lower rate just does not compute."
We'll just have to agree to disagree. The tax code does not require anyone to pay more than the minimum amount of taxes. My opinion is that the IRS will follow the law. When they decide to change the way things are done, I feel absolutely confident that the IRS will amend Publication 15A by the method allowed for by law.
no, I am saying that prior to the new California dancer law, it was left to the dancer to report the appropriate amount of income and pay taxes accordingly. What the new law requires is that the clubs report dancers' income directly to the IRS and Cal state tax authority via a 1099 form, supposedly including shift pay, splits paid to the dancer for private dances, champagne room etc. The IRS and Cal state tax authority, knowing that dancing involves tip income, will then expect some additional amount of tip income to be reported by the dancer even though it was not reported by the club. Additionally, under the letter of the new California dancer law, clubs will not subtract any amounts paid to the club by the dancer for stage fees, tipouts etc. from the amount reported on the 1099. Having all of this income reported automatically, with questionable ability to subtract stage fees and tipouts above 2% of total income as business expenses, is what has supposedly changed.
"Additionally, under the letter of the new California dancer law, clubs will not subtract any amounts paid to the club by the dancer for stage fees, tipouts etc. from the amount reported on the 1099. Having all of this income reported automatically, with questionable ability to subtract stage fees and tipouts above 2% of total income as business expenses, is what has supposedly changed."
Melonie, I don't know why you won't believe the IRS, but the law and regulations are clear. There is a presumption that if you receive a 1099, you ARE [emphasis added] an independent contractor and CAN DEDUCT [emphasis added] stage fees and tip outs.
the reason I am concerned is that A. if the club checks the 'statutory employee" box of the 1099, that presumption is history, B. it is in the club's legal and financial interest to classify dancers as statutory employees because the new law requires it and more importantly because that status allows the club to deduct payouts to dancers for private dance splits etc. as a business expense of their own thus increasing the club's after tax income, and most importantly C. that California clubs are making a big deal about making sure that dancers report earnings above minimum wage levels, which would only be important to them if statutory employee status was being contemplated. Maybe I'm wrong - for the sake of California dancers I hope I'm wrong - but until this matter is settled in the tax courts it's an awfully big gamble.
The FTB website has a document on the subject of workers specifically defined as "statutory" employees under specific legal statutes at . Unfortunately, it has apparently not yet been revised to reflect the new California statute which applies to dancers. Being classified as a "statutory" employee creates a "hybrid" status including a few features of "common law" employees but retaining many features of independent contractors, including income reporting via a 1099 form and no withholding requirement for personal income tax on the part of the "statutory" employer, and the "statutory" employee still being responsible for SE tax. I could not find any info on whether this new category of California "statutory" employee dancer is considered "exempt" from comp, unemployment etc. or not. Of the older types of California "statutory" employees for which info is available like salespersons, most ARE covered by comp and unemployment and are subject to comp and unemployment withholding by the "statutory" employer (but not income tax withholding). Again more confusion which won't really be settled until the subject comes before auditors and judges.