labor lawAdivision of labor law center

If you worked as an independent contractor or received unemployment compensation benefits in 2006 in the state of Hawaii, you’ve probably received you 1099 form listing earnings and deductions paid during the previous year. In January 2007, the Hawaii Department of Labor (WDOL) sent these forms to Hawaii citizens who collected unemployment benefits during the previous year. The forms were also sent to the state’s Department of Revenue, and the US Internal Revenue Service (IRS).

Hawaii unemployment benefits and income earned while working as an independent contractor are taxable just as traditional earnings reported on a W-2 form are. Your 1099 form lists earnings paid or unearned compensation paid in the case of unemployment plus any corresponding deductions made on the recipient’s behalf. In the case of unemployment, the deductions may include court-ordered payments made by the state for the unemployed worker for situations such as child support or restitution to the court.

People in Hawaii receiving unemployment benefits have the option of paying taxes on their compensation in one lump sum when they file their state and federal income tax returns or they can choose to have taxes deducted from each benefit check. When employed, taxes are taken from each paycheck and reported at year end on a W-2 form.

Independent contractors in Hawaii do not have taxes withheld from each payment received. Most independent contractors pay state and federal taxes at one time when they file their tax returns. When earnings are exceptionally high, the independent contractor may be required to make estimated income tax payments on a quarterly basis.

Anyone who hasn’t received his or her 1099 yet is urged to contact the nearest office of the WDOL. Here your address will be verified and a 1099 re-issued. It may take as long as a week to receive the re-issued 1099 form and, again, a copy of it will be mailed to the state and federal departments of revenue.

Hawaii Unemployment Insurance posters include important information for both employees and employers. An example of information on Hawaii Unemployment Insurance posters that benefits employers is the opportunity for a family-owned corporation to be excluded from the state unemployment insurance tax.

A family-owned private corporation organized for profit is permitted to elect exclusion from Hawaii unemployment insurance coverage if (1) the corporation has, as its only employees, individuals of a family, related by blood, marriage or legal adoption; and (2) each employee owns at least fifty percent (50%) of the shares issued by the corporation. Individuals that own one hundred percent (100%) of the shares are not eligible for the exclusion.

Hawaii unemployment insurance posters advise owners of a family-owned private corporation of important considerations before seeking the exclusion. The exclusion from coverage is irrevocable for five (5) years. In the event the business closes, wages paid to the owners by this corporation during the period of this election cannot be used to establish a claim for unemployment benefits.

A business with the exclusion from state unemployment insurance is still liable for Federal Unemployment Taxes FUTA but no longer qualifies for a 5.4% FUTA tax credit afforded employers who have not made the election to be excluded. This means total taxes may be higher for family-owned private corporations than the combined State UI and FUTA tax liability of a covered corporation.

In addition the family-owned private corporations are subject to reporting requirements. Excluded businesses are also required to report that affect eligibility for exclusion from coverage within five (5) working days from the date of change: (1) date that the corporation hired employees other than 50% owners; (2) date that any owner owns less than 50% of shares issued by the corporation; or (3) date that any owner is not a family member related by blood, marriage, or legal adoption. Excluded businesses may be required to furnish the state agency a copy of Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” that they filed with the Internal Revenue Service.

Hawaii Unemployment Insurance posters contain all of the current state and federal labor laws for your employees to review.