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very informative post about IC versus employee - NC MT


Posted: Jun 03, 2012

The IRS Gives Employees a Whistle to Blow and Employers a Safe Harbor

By Peter Milne | Published: May 5, 2011

The IRS has given an employee worker wrongly clas­si­fied as an inde­pen­dent con­trac­tor a very loud whis­tle to blow and employ­ers the means to obtain an advance deter­mi­na­tion of worker clas­si­fi­ca­tion to avoid future dis­putes and tax liabilities.

When is a worker an employee or an inde­pen­dent con­trac­tor for fed­eral income tax pur­poses? Dis­putes over employee or inde­pen­dent con­trac­tor clas­si­fi­ca­tion fre­quently arise and the out­come is usu­ally very impor­tant to one and very expen­sive for the other. Mis­takes are some­times made, but more often, employ­ers will incor­rectly clas­sify an employee as an inde­pen­dent con­trac­tor for sev­eral rea­sons. The most com­mon rea­son is to avoid the pay­ment of the employer’s por­tion of employ­ment taxes (usu­ally about 7.5% of gross). The sec­ond rea­son is to avoid the prepa­ra­tion and fil­ing of quar­terly 941 employ­ment tax returns. Another rea­son is to avoid mak­ing employ­ment tax deposits. Some­times, employ­ers may not under­stand the legal and tax dif­fer­ence between an employee or inde­pen­dent con­trac­tor and clas­sify the worker in what­ever way the worker suggests.

A worker who should be clas­si­fied as an employee may want to be treated as an inde­pen­dent con­trac­tor so that pay­roll taxes and fed­eral income taxes are not with­held from his or her earn­ings. More com­mon is the sit­u­a­tion where a worker who is clas­si­fied as an inde­pen­dent con­trac­tor wants to be treated as an employee so that more of his or her earn­ings are reported to the Social Secu­rity Admin­is­tra­tion. The more income reported as earned, the higher the monthly retire­ment ben­e­fit. In cer­tain trades and busi­nesses, such as con­struc­tion, land­scap­ing, house­keep­ing, jan­i­to­r­ial, farm­ing, ranch­ing, fish­ing, repair and maintenance-where work­ers tra­di­tion­ally earn piece­meal or by the job and are often unskilled and less edu­cated –the worker sim­ply has no choice as to whether they are clas­si­fied as an employee or as an inde­pen­dent contractor.

The IRS pro­vides Form SS-8 -Deter­mi­na­tion of Worker Sta­tus for Pur­poses of Fed­eral Employ­ment Taxes and Income Tax With­hold­ing– for use by an employer when the employer is not sure how to clas­sify a worker. Upon sub­mis­sion of the SS-8, the IRS will make an advance deter­mi­na­tion of how the worker should be clas­si­fied, which gives the employer a safe har­bor if the worker ever com­plains or if the wrong clas­si­fi­ca­tion is made.

In addi­tion, the IRS pro­vides Form 8819– Uncol­lected Social Secu­rity and Medicare Tax on Wages- to a worker who believes that his or her employ­ment clas­si­fi­ca­tion is incor­rect. Form 8819 is the big, loud and often very expen­sive whis­tle, that when sub­mit­ted with Form SS-8, alerts the IRS to a pos­si­ble improper clas­si­fi­ca­tion and per­mits the employer’s por­tion of social secu­rity and medicare taxes to be cred­ited in advance to the worker’s social secu­rity record.

If the IRS ulti­mately agrees that the whis­tle blow­ing worker has been mis­clas­si­fied, the actions of the employer will be care­fully scru­ti­nized. An employer who improp­erly clas­si­fies an employee as an inde­pen­dent con­trac­tor may be sub­jected to an audit. The books and records of the employer will be exam­ined and work­ers may be ques­tioned. In addi­tion to an after the fact assess­ment of the employer’s por­tion of employ­ment taxes, the employer who mis­clas­si­fies a worker or work­ers may be sub­jected to ordi­nary civil fail­ure to deposit, fail­ure to file and fail­ure to pay when due (delin­quency) penal­ties, the more seri­ous civil fraud penalty and the most seri­ous of all, a fed­eral crime. None of these out­comes are good for busi­ness, even in the best of times.

If you are an employer that is unsure of how to clas­sify a worker, that has dis­cov­ered cer­tain work­ers have been mis­clas­si­fied, or that has inten­tion­ally mis­clas­si­fied work­ers, seek legal assis­tance imme­di­ately. If you are a worker who believes that he or she has been mis­clas­si­fied and wants some recourse, don’t wait to blow the whistle.

The area of worker clas­si­fi­ca­tion can be very con­fus­ing. Mis­takes are com­mon. Mis­clas­si­fi­ca­tion of worker sta­tus to keep costs low or for exploita­tive pur­poses fre­quently hap­pen.

I wonder if - sm

[ In Reply To ..]
You can do that after you are no longer working as an IC. I worked as an IC for 2-1/2 years and I believe that I should have been an employee the whole time, but I have not worked there in almost 2 years. Wonder if they go back that far?

Yes you can! - anon

[ In Reply To ..]
You can still submit your form to the IRS to receive a determination letter even though you are not currently working there.

IC in transcription was popular in the early 80s. - anon

[ In Reply To ..]
At that time 10 cents to 13 cents some were getting as being an IC. Some disgruntled MTs filed unfair labor disputes. I only heard stories through other small services at that time and that there were several owners who were about to lose their homes because of the taxes. Then MTs were changed to 'statutory employees.' The small service I worked for then, she had to attend meetings on how the laws were coming down on this profession because of the tax evasion practices. Then I remember the ruling also came out that if a business had 6 employees, she HAD to OFFER health coverage (could be unaffordable and near NO coverage)but had to be OFFERED. Maybe different laws too in different states. Many laws, many changes we have seen. Now IC and employees and less benefits and less wages, but still taxes! The saying nothing is for certain except death and taxes has not changed as this job IS killing us.


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