Scarinci Hollenbeck, LLC
The Firm
201-896-4100 info@sh-law.comFirm Insights
IRS Clamps Down on Companies that Misclassify Workers
Author: Scarinci Hollenbeck, LLC
Date: March 22, 2013
Key Contacts
Back
Tax season is officially here, and business owners with independent contractors and employees should not misclassify workers to avoid attracting the ire of the Internal Revenue Service.
In an effort to close the tax gap and ensure full compliance with federal tax law, the IRS is focusing more closely on business tax returns and, specifically, the way in which companies classify workers. The agency has been cracking down on businesses that misclassify workers as independent contractors rather than employees, and the penalties for doing so can be steep. In many cases, hiring independent workers can be more cost-effective for companies. Companies are not required to withdraw payroll, Social Security and Medicare taxes, provide benefits or pay unemployment insurance. However, if the IRS determines that employers have incorrectly labeled workers, they may be forced to pay up to 100 percent in payroll taxes owed to the IRS, according to Fox Business.
Currently, the IRS has audited or is in the process of auditing 6,000 companies in the crackdown mission, the news source reports. The IRS estimates that at least 30 percent of workers are currently misclassified, and resolving this issue could yield as much as $7 billion in revenue, Fox Business adds.
Because the IRS has a strong financial incentive in cracking down on misclassified workers, it’s important that companies know the difference between who qualifies as a contractor versus and employee. For example, workers who set their own schedules, utilize their own tools to complete a job and provide services to other businesses are generally classified as independent contractors and should be issued 1099 forms, rather than W-2s. However, when companies control or have the right to control what the worker does and how the worker does his or her job, as well as how they paid, the hours they work and the benefits they receive, individuals may fall under the employee classification.
- Practices: Corporate Transactions & Business, Tax and Trusts & Estates
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Why Secured Transactions Are Important
Secured transactions form the backbone of a wide range of business dealings, including business loans, mortgages, and inventory financing. Because the stakes are often high and relatively minor oversights can have drastic consequences, lenders and borrowers should thoroughly understand how to form an enforceable security agreement that protects their legal rights. What Is a Secured […]
Author: Dan Brecher
Don’t Cash a “Paid in Full” Check Without Understanding the Legal Implications
Cashing a check marked “paid in full” can be a risky endeavor, particularly if you don’t fully understanding the legal implications. If you are owed more than the amount of the check you accept and deposit, you may waive your right to collect the full disputed amount. That is why you should consider either rejecting […]
Author: Dan Brecher
Changes to Qualified Small Business Stock Will Benefit Startup Founders and Investors
The One Big Beautiful Bill Act of 2025 (OBBBA) significantly impacts federal taxes, credits, and deductions. A key change relating to Qualified Small Business Stock (QSBS) allows greater tax-free gains for investments in startups and other qualifying small businesses. Company founders and other investors should understand how the enhanced tax strategy works or risk missing […]
Author: Dan Brecher
Corporate Consolidation and Antitrust Issues in Mergers
Corporate consolidation involves two or more businesses merging to become a single larger entity. The result is often a stronger and more competitive company that can better navigate today’s competitive marketplace. What Is Corporate Consolidation? Corporate consolidation closely resembles a basic merger transaction. The primary difference is that a consolidation creates an entirely new business […]
Author: Dan Brecher
What is Business Law and Why Is it Important?
Business law plays a critical role in nearly every aspect of running a successful enterprise, from negotiating a commercial lease to drafting employee policies to fulfilling corporate disclosure obligations. Understanding what is business law and your legal obligations can help your business run smoothly and build productive relationships with clients, business partners, regulators, and others. […]
Author: Dan Brecher
Corporate Transactions: Best Practices for Successful Deals
Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]
Author: Dan Brecher
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.