Sorting Out Worker Classification, Contractor Fines, Penalties and More

One of the biggest tax loopholes for employers over the last few years has to do with the classification these employers used to categorize their employees. The main issue is with the use of “contractor” instead of full-time or part-time employee. An employer can qualify for all kinds of tax breaks if they fudge the numbers here, but the IRS has newly taken special interest in this practice. The number and amounts of the fines and penalties has skyrocketed in an try to reign in this behavior once and for all.

According to a of late published article, two of the main culprits have been worldwide delivery giant Fed Ex and insurance giant Northwestern Mutual. In the case of Fed Ex, the IRS “Express” delivered a fine of over $300 million. For Northwestern Mutual, the IRS is seeking over $200 million. Granted, if you are a small trade with only a handful of employees, you likely won’t see fines like this but you could see fines large enough to make a real dent in your bottom line. For some businesses in this economy, that is all they have to to be scared into complying.

This reclassification method has gotten so severe that even Congress has taken an interest. A recent bill has been snaking its way through committee after committee in an endeavor to tighten the classifications so that businesses both small and large are forced to pay attention. What does this mean for the individual? If you feel that you may be subject to worker classification contractor fines, penalties and more, you simply must to contact the IRS or talk to a proficient tax preparation expert to find out how you should be classified. This is a very complex issue and the IRS is sure to be lenient with you, but you do necessitate to ask if you have any reason to trust that you are classified incorrectly. The penalties will be far more severe for your manager but you are still expected to know what your classification is. This is why they are encouraging you to ask questions and to be sure you are classified the correct way.

There is no question that this sudden interest in worker classification, contractor fines, penalties and more has sparked quite a bit of confusion for both employers and employees. Oftentimes, we spend most of our tax preparation wondering about deductions and dependents and not on our status. What muddies the waters even further is the penchant for employers to pay employees as part-time, even if they are working 45 hours a week or more. This is done to get away with not providing benefits and you can bet the same behavior is going on with worker classification. If you are unsure about how your classification works or if your job exists in a grey area where you aren’t positive how you qualify, it is extremely main that you speak to the IRS and make sure your employer isn’t breaking the law.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

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