Do you have misclassified workers? Do you have contractors who should be classified as employees? How do you know for sure?
First, take a look at JMF’s pamphlet about contractors and employees. Ask for one when you pick up your tax return.
An interesting article in the Wall Street Journal this morning by Angus Loten and Emily Maltby says:
“In the past three years, the IRS, working with the Labor Department and officials in more than a dozen states, set a goal of investigating 6,000 employers, like Mr. Robinson, to ensure their workers are properly classified. Since September 2011, the government has collected $9.5 million in back wages for more than 11,400 workers who were misclassified as independent contractors by their employers, the Labor Department says.
The crackdown is aimed in part at boosting tax revenue. Employers don’t pay or withhold income taxes, Social Security, Medicare or unemployment taxes for independent contractors, as they do for staff workers. The U.S. Treasury estimates that forcing employers to properly classify their workers—while tightening so-called “safe harbor” rules that provide them with leeway in determining who is and isn’t an employee—would yield $8.71 billion in added tax revenue over the next decade.”
Do keep in mind that there are legitimate reasons to classify someone as an independent contractor, but the IRS, the Department of Labor and the states’ unemployment departments are all looking to find revenue. Make sure you know the rules and document your arrangements. A written contract is not enough and if the worker situation functions like an employee situation the IRS will disregard that written contract.
Call our Trusted Business Advisers at JamisonMoneyFarmer if you have questions or would like a copy of our pamphlet and aren’t in the Tuscaloosa area.