Our retail store has a 3 day event every summer where we hire security. We do this by contacting the Sheriff’s Office, telling them the dates of the event and our hours of operation. They tell us which police officers can be here, which days they can be here and what their hourly rate is. Do these individuals need to go on payroll or do we 1099 them?

Your question is so good. Traditionally, off-duty officers are paid and issued a 1099. They are required to report the income and pay taxes on their own. However, if pushed by a sticky IRS agent, that is not actually correct.

The fact that you arrange this through the Department could be argued that they are on duty and employees of the Department during this time. But, if you are paying them directly it could be argued that you are the employer since you set the time and place and paid an hourly rate.

Read this IRS ruling and see if it helps:

Revenue Ruling 56-154, 1956-1 C.B. 477, involved a regular member of a police department who, while off-duty, was engaged and paid by a merchant to regulate lines of customers outside the merchant’s business establishment so that entrances of nearby business establishments would not be blocked. The police officer had taken an oath to uphold the laws twenty-four hours per day and be subject to call at all times. The merchant designated the time the police officer was to be on duty, instructed him as to what was to be done, determined and paid his wages, and had the authority to terminate his services at any time. The Service concluded that the merchant had the right to direct and control the police officer and was therefore the employer for federal employment tax purposes.

Here is a link to a document discussing this ruling and many others: https://www.thetaxadviser.com/issues/2013/apr/tpp-apr2013-story-01.html

I wish I could give you a solid answer. But, it’s a call the business has to make.

I hope this helps with your decision making process.

February 2018