February 20, 2018

IRS Incentivizes Employers to Come Clean on Wrongly Classified Independent Contractors

The IRS is offering a break to employers who admit wrongly classifying some workers as independent contractors to avoid paying federal payroll taxes.

When an employee is considered an independent contractor, employers don’t have to pay various taxes, including unemployment insurance taxes, workers’ compensation premiums or the employer’s share of Social Security and Medicare taxes. Workers most always have fewer rights as independent contractors. The IRS is trying to encourage correct behavior so that people pay their taxes. They want to make it as easy as possible for employers to come clean and do it right from that point forward. There is not a set a deadline to apply.

Bottom-line For Employers Accepted Into The New IRS Program

  • Must pay a little more than 1 percent of the wages paid to the workers for the past year
  • No interest or penalties will be due on those reclassified workers
  • Employers will not be audited on payroll taxes related to these workers for earlier years
  • The IRS program covers only federal taxes; employers may still be liable for unpaid state taxes.

How Does An Employer Qualify For The Program?

  • Employers must have classified the workers as independent contractors in the past and filed all of the associated tax forms
  • Employers who have simply been paying workers under the table need not apply
  • Businesses already being audited are also ineligible.

Why Come Clean Now?

If employers don’t come forward now and are later found wrongly classifying employees as independent contractors, they could be liable for three years’ worth of employment taxes, plus interest and penalties.

How Does An Employer Know The Different Between An Independent Contractor And An Employee?

It depends on the degree of control they have over the worker. Does the company control what the worker does and how the worker does his or her job? Are there written contracts or employee type benefits?”

>> More information to help in Classification of Employees or Independent Contractors


Contact United Comp (513) 891-4785 if you have any questions about classifying your employees and independent contractors or any other workers compensation related issues.