INSIGHTS & IDEAS

IRS intensifies scrutiny of misclassified workers

The IRS is stepping up its enforcement efforts to challenge employees who are misclassified as independent contractors.  The 1099 Matching Program is now targeting individuals who receive only one Form 1099-MISC and file a Schedule C with their personal tax return.  Forty state unemployment agencies have also signed a memorandum of understanding to share results of employment tax examinations.  Employers who are found to have intentionally misclassified a worker as a independent contractor can be assessed penalties equal to 100% of the federal income tax, Social Security, and Medicare tax that should have been withheld.  Employers may also have to pay retroactive employee benefits such as medical insurance and participation in 401(k) plans.  It is noted that roughly half of the Department of Labor Investigations are the result of worker complaints after someone who has been treated as an independent contractor stops receiving work and files a claim for unemployment benefits.

 

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