Preparing for an IRS Worker Classification Audit

The misclassification of workers as either employees or independent contractors has led to billions in lost tax revenue for the government, including uncollected Social Security, Medicare, unemployment, and income taxes. To combat this issue, the IRS has intensified its efforts by launching worker classification audits. These audits involve a thorough examination by IRS agents to determine whether businesses correctly classify their workers according to tax law requirements.

Employee vs. Independent Contractor

The distinction between an employee and an independent contractor (IC) is crucial, as each classification bears different tax implications. Independent contractors are self-employed individuals who provide services to a business under a contract. Businesses are not required to withhold taxes from payments made to independent contractors. If an independent contractor receives over $600 from a company in a year, they must be issued a Form 1099-MISC. The responsibility to withhold and pay taxes falls on the independent contractor.

Conversely, when a business classifies a worker as an employee, it assumes the responsibility of withholding Social Security, Medicare, and federal income taxes from the employee’s wages. Additionally, the employer must contribute the employer’s share of these taxes and cover Federal unemployment taxes. Beyond tax obligations, classifying a worker as an employee entails providing benefits and upholding certain rights. Employers issue a Form W-2 to each employee at the end of the year and submit Form W-3 to the Social Security Administration.

The Treasury Inspector General for Tax Administration (TIGTA) has identified the widespread misclassification of employees as independent contractors as a significant contributor to the Tax Gap. This misclassification can lead to substantial liabilities in state and federal business back taxes.

Expert Defense Against Worker Classification Audits

At the Law Office of Todd S. Unger, Esq. LLC’s expertise lies in meticulously analyzing the statutory framework and relevant case law to offer robust defense strategies against worker classification audits. Understanding the complexities of these audits and the potential financial implications for your business is crucial. We aim to navigate you through the audit process, ensuring your business meets compliance standards while minimizing potential liabilities.

If your business is facing a worker classification audit or you seek guidance on properly classifying your workers, contact the Law Offices of Todd S. Unger, Esq. LLC for a confidential consultation.

Let our experience in tax law protect your business and guide you through the complexities of IRS audits. (877) 544-4743