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
The SEC’s Latest Guidance on Applying Federal Securities Laws to Tokenized Securities
On January 28, 2026, staff of the U.S. Securities and Exchange Commission’s Divisions of Corporation Finance, Investment Management, and Trading and Markets issued a joint statement clarifying how existing federal securities laws apply to tokenized securities. The SEC’s “Statement on Tokenized Securities” does not establish new law, but it does provide greater clarity on the […]
Author: Dan Brecher
Common Legal Mistakes NYC and New Jersey Business Owners Make
Operating a business in the New Jersey and New York City metropolitan region offers incredible opportunities, but it also requires navigating a dense and highly regulated legal environment. From entity formation to regulatory compliance, seemingly minor legal oversights can expose business owners to significant risk. In our work with businesses throughout the region, our attorneys […]
Author: Dan Brecher
What Founders Can Learn From Start-up Suits
High-profile founder litigation is more than just a media spectacle. For startup founders, these cases underscore the legal and structural risks that can arise when rapid growth outpaces formal oversight. While launching a new company can be both an exciting and deeply rewarding endeavor, founders must be mindful that it also comes with significant risks. […]
Author: Dan Brecher
Corporate Governance Reviews: A Practical Guide for New Jersey Companies
Every New Jersey company should periodically evaluate its governance framework. Strong corporate governance protects directors and officers, builds investor confidence, reduces litigation exposure, and positions a company for sustainable growth. The first quarter of the year is a great time to evaluate your corporate governance practices and perform any routine maintenance needed to keep that […]
Author: Ken Hollenbeck
What to Do After Being Served with a Lawsuit: Steps to Protect Your Legal Rights
Being served with a lawsuit is one of the most stressful legal events a business or individual can face. Whether the claim involves a contract dispute, an employment matter, an intellectual property issue, or another legal challenge, the actions you take in the first few days can significantly shape the outcome of your case. Acting […]
Author: Robert E. Levy
Will 2026 Be a Banner Year for SPACs? Understanding the Risks and Opportunities
Special Purpose Acquisition Companies (SPACs) continue to gain momentum as we move through 2026. After enduring a significant contraction following the 2021 boom and the regulatory scrutiny that followed, SPAC activity rebounded sharply in 2025 and now carries forward into 2026 with real momentum. The SPAC resurgence reflects broader improvements in both market conditions and the […]
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.