IRS cracks down on contractor use
Companies that misclassify workers as independent contractors instead of employees could face scrutiny and penalties in Internal Revenue Service audits. Over the next three years, the IRS will audit 6,000 randomly selected businesses nationwide, including small and tax-exempt employers, on their compliance to pay employment tax, or FICA and Medicare.
Among the most often misclassified workers are truck drivers, construction workers, home health aides and high-tech engineers.
The audits, likely of 2007 and 2008 tax years, will focus on whether companies misclassify workers to avoid their tax obligations. Such misclassifications contribute to 82% of uncollected taxes, according to the IRS.
Misclassifications can be costly. Along with back taxes and penalties owed for the three-year statute of limitations on audits, workers reclassified as employees may make demands on employers for benefits such as retirement, medical, paid time off and other fringe benefits.
Workers are generally considered employees when someone else controls how and when they perform their work. In contrast, independent contractors are generally in business for themselves, obtain customers on their own and control how they perform services.
Sources: NewsOK, February 7, 2010; New York Times, February 17, 2010
Companies that misclassify workers as independent contractors instead of employees could face scrutiny and penalties in Internal Revenue Service audits. Over the next three years, the IRS will audit 6,000 randomly selected businesses nationwide, including small and tax-exempt employers, on their compliance to pay employment tax, or FICA and Medicare.
Among the most often misclassified workers are truck drivers, construction workers, home health aides and high-tech engineers.
The audits, likely of 2007 and 2008 tax years, will focus on whether companies misclassify workers to avoid their tax obligations. Such misclassifications contribute to 82% of uncollected taxes, according to the IRS.
Misclassifications can be costly. Along with back taxes and penalties owed for the three-year statute of limitations on audits, workers reclassified as employees may make demands on employers for benefits such as retirement, medical, paid time off and other fringe benefits.
Workers are generally considered employees when someone else controls how and when they perform their work. In contrast, independent contractors are generally in business for themselves, obtain customers on their own and control how they perform services.
Sources: NewsOK, February 7, 2010; New York Times, February 17, 2010