Worker Classification

Feb

8

Worker Classification

Worker Classification Issues are a Top Priority on Washington’s Agenda. Since independent contractor classifications result in lower federal employment taxes for businesses, a worker’s classification has always been a contested issue between the government and business sectors. This is complicated by the vague classification process of a “facts-and-circumstances test”, based upon whether or not the business has the right to control a worker’s methods in performing the services.

To encourage consistency in the classification process, three key initiatives have arisen over the past few months. The first of these is a voluntary classification settlement program (VCSP) established by the IRS in September, which allows taxpayers to reclassify workers for tax purposes, while only paying approximately 10% of the employment tax liability due on compensation paid over the past year to the reclassified workers. To qualify, businesses must meet the IRS’s criteria and complete Form 8952.

The IRS has also partnered with the Department of Labor allowing the IRS access to information and data from the DOL’s Wage and Hour Division, relating to any investigations on employment tax compliance. The IRS will then evaluate and classify these employment tax referrals, and make any necessary examinations; share these referrals with the taxing agencies of states and municipalities; and provide the DOL with annual reports and aggregate data on misclassifications.

President Obama’s current “jobs plan” also includes a provision permitting the IRS to issue regulations or guidance for proper classification, in addition to requiring the prospective reclassification of currently misclassified workers.

Further information can be found in the following:
http://www.aicpa.org/publications/taxadviser/2012/january/pages/dccurrents_jan2012.aspx
http://www.irs.gov/businesses/small/article/0,,id=246013,00.html
http://www.aicpa.org/Publications/TaxAdviser/2012/January/Pages/clinic-story-05.aspx

Should you have questions or concerns on the classification of your employees or subcontractors, please contact us at Cassady Schiller so we can assist and advise.