A New Threat On The Horizon: A Crackdown By The IRS ON Contract Employees

For a long time, the IRS has applied a “20 Question Test” to determine of people being paid as independent contractors should really be considered employees. Companies that incorrectly designated people as contractors have long been subject to penalties back withholding taxers and interest. But in this age of exploding deficits and demand for increased government revenue, the IRS has substantially ramped up its investigative activity in this area. They have also signed a number of agreements with state governments to cooperate with each other to uncover and report wrongdoers to each other. Who knows where this will lead and how it will apply in individual cases. But information can reduce the risk of placing your business in a bad spot and paying the price. First, here is a link to some information that ADP gathered some time ago about the whole 20 Question test process. It is conceivable that things may have changed somewhat. But you owe it to yourself to learn about this and do one other thing: look at any contractors you are paying. Decide which ones that are at risk for being reclassified, estimate your real increased costs caused by having to withhold certain taxes and remitting them to Federal, State and Local governments and then make a rational business decision. As always, consult your financial advisor experts before taking any action.