Independent Contractor vs. Employee Status

Have you received a notice from the IRS that there are questions concerning the way your workers are classified?  Are they employees or subcontractors? This issue poses potentially huge tax problems, since a worker’s status in your employment impacts whether, what kind, and how many taxes you withhold from the paycheck.  The IRS takes the question of worker classification very seriously, particularly as subcontractor classification is often viewed as an attempt to skirt having to match and to pay over employment taxes and to offer benefits to employees, such as paid leave.  The State’s Department of Labor also assesses unemployment taxes to employers, and worker’s compensation rates are based in part on a business’s gross payroll.

If you hire a worker with the label of independent contractor, it is highly likely you will not withhold any taxes for the independent contractor’s pay, and consequently you will not match the contributions to social security and Medicare/Medicaid taxes. If the IRS determines the worker to be an employee, you can then be deemed responsible for the taxes that should have been matched and forwarded to the IRS, but weren’t.  If the worker was affiliated with your business for many years, tens of thousands of tax dollars may be of concern.

In other words, you will face a tax assessment, plus penalties and interest, for the taxes in question – and you will probably face an audit of your business’s returns for several years as well.

If the IRS contacts you regarding worker classification matters, call our tax boutique immediately.  Why?  The IRS is given broad discretion in determining a worker’s status.  Many factors weigh in on the IRS’s practice of classification.  There are no hard and fast guidelines, so cases are mostly decided on an individual basis through investigation, including interviews, with your business’s personnel.  If you are not represented by informed counsel, you may not be aware of your rights, and your business associates may inadvertently misspeak regarding a worker, resulting in adverse assessments against your business.

However, our tax boutique provides informed, knowledgeable guidance concerning your business practices involving worker status.  Hiring us protects your company’s best interests when it comes to establishing worker relationships with your business, whether the workers function as employees or subcontractors.  We are experienced with the IRS’s basic procedures when it comes to worker classification and are familiar with the preferred methods to achieve optimum results for you in a worker classification dispute.

When you consult with us, we will:

  • Review your company’s employment and subcontractor records and contracts to ensure the status of the worker in question.
  • Advise you of your options for moving forward with the dispute.
  • Interact with the IRS on your behalf, ensuring that your rights as a taxpayer are observed and that no undue pressure or stress falls on your company’s associates during interviews.
  • Negotiate with the IRS concerning a worker’s classification.
  • And appeal decisions made by the IRS in error concerning worker status.

Consulting with our tax boutique concerning your workers’ classifications will help ensure a satisfactory outcome of a status controversy.  Our team of professionals will evaluate your business’s records and review your company procedures and policies, so that you can be confident you are compliant with IRS regulations during your next hire.