Employees vs. Independent Contractors For Tax Purposes

Business owners are responsible for accurately determining whether a worker is classified as an independent contractor or an employee. From the business's perspective, paying an employee comes with greater financial demands. It requires payment at minimum of Social Security and Medicare taxes, and federal and state unemployment taxes.

Many business owners choose the independent contractor or self-employed designation because it is cheaper. Be careful. Do not risk your business by misclassifying an employee. Contact us now to discuss employee and independent contractor classification issues.

The IRS And Employee vs. Independent Contractor Classification

Due to a declining number of participants in the Social Security system, the IRS has increased its interest and review of the independent contractor vs. employee classification. Since the overall cost of hiring employees can be substantially higher, many businesses tend to err on the side of considering workers to be contractors. If the IRS determines that a worker should have been considered an employee instead of independent contractor on your tax forms, however, you could be hit with a substantial amount in back-taxes, penalties and interest.

How do you determine that classification properly? Many factors are analyzed to make this important determination.

  • Do you control or have the right to control what the worker does?
  • Do you control how the worker does his or her job?
  • How is the worker paid?
  • Do you reimburse the worker's expenses or provide the worker's tools?
  • Is there a written contract between the business owner and worker?
  • What benefits do you provide to the worker?

The key factor for determination is the business owner's evidence of control and independence over a worker. In most cases, there are factors that support both designations. Each situation is unique and requires experience to properly determine.

Helping You Make Smart Business Tax Decisions

Whether you are starting a new business and need evaluation of your situation or you have been contacted by the IRS to challenge your business employment tax filings, tax attorney Jason Peck has the necessary skill and experience to review your situation and objectively determine the best options for your business.

Mr. Peck offers more than 20 years of experience advising and representing businesses, large and small, throughout the United States on employment tax matters.

Contact Us For A Free Half-Hour Consultation With A Tax Lawyer

To avoid increased costs down the road because of improper independent contractor classification, contact The Peck Group, LC, in Atlanta, Georgia. In IRS matters, we serve clients throughout the Southeast and across the U.S.