IRS Promises Amnesty; But Did You Do the Crime?
If you’ve been worrying that you have been paying employees as contractors, but afraid of the consequences of fessing up, the Internal Revenue Service (IRS) has a new program just for you.
Making use of the carrot-and-stick approach, the IRS has promised small business owners a chance to correct the employment classification of contract employees. At the same time, the IRS is promising to crackdown on mis-classifications with fines, penalties and back taxes.
For a limited time, the IRS will allow an employer to re-classify contractors to employees with about a 1% back tax payment, according to the IRS website. There are certain eligibility requirements that must be met and you should definitely consult with you accountant and employment attorney before applying for the program.
Of course, the issue that most employers face is the ambiguity of the classification process. Who should be a contractor and who should be an employee? Here the IRS is not providing much help. As quoted in today’s Wall Street Journal, below is the IRS guidance on that subject:
There is “no magic or set number of factors that ‘makes’ the worker an employee or an independent contractor.” Here’s a link to the IRS guidance on the subject and good luck…
So it remains up to the employer to decide on the correct classification. Going forward, the IRS promises a crackdown on misclassification, leaving business owners in a familiar, “You can pay me now or pay me later” conundrum. Employees, with their associated costs like payroll taxes, benefits and unemployment costs, are expensive. Independent Contractors are less expensive – unless an employer is found to owe back taxes, insurance, penalties and fines.
Tags: IRS worker classification, Small business news
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