Contractor abuse? Here’s what you need to know.
The IRS determines whether your job or your workers can be called contractors or must be called “employees”. The employer does not get to make that call.
There is a three pronged test that the IRS, Department of Labor and state level agencies use to make that determination.
You can find a great, short and clear discussion of these tests here http://tinyurl.com/cmk9ytt
If you are a worker, and you find that you meet the tests to be an employee and not a contractor, you have a couple of ways to go:
File an IRS request for determination using form SS-8. http://www.irs.gov/pub/irs-pdf/fss8.pdf
File a Department of Labor complaint - that page is here: http://www.dol.gov/whd/workers/misclassification/
We have allowed mis-classification to run rampant since the early 1980s. Since 2009, reversing this trend has been an important component of Federal DOL policy, and several state policies.
The reason for this is that there is an enormous cost to taxpayers for letting misclassification to continue. Read this article to understand - it’s also short, concise and cogent: http://tinyurl.com/l7of5xw
If you’re an employer who is trying to avoid the handful of dollars in tax by mis-classifying, they’re coming for you. I can promise you that. Even here in Texas, state legislators are coming to understand that tax revenue is being left on the table at a time when the TWC unemployment compensation trust fund is empty as a reservoir in West Texas.
If you’re an employer, the way to avoid severe tax penalties and related costs is to fix the problem and self-report to the IRS that you were misclassifying but are no longer doing so.
After 2014, the costs for misclassification could well more than double if you “employ” more workers than the threshold number for Affordable Care Act compliance.
If you’re an employer and you need help with that, you should contact me! I can help you.