How Would Your Small Business Fare with the IRS for Worker Status?

Did you know that misclassifying workers is one of the top problems that small business owners face? Many small businesses hire independent contractors as part of running their businesses and delivering services or products. It is vital for employers to ensure that they classify workers correctly.

What Can Happen as Result of Misclassifying Workers as Independent Contractors?

The IRS website explains that misclassified workers can file a Social Security Tax Form 8919. Form 8919 is a request for uncollected Social Security and Medicare taxes due on their compensation. In other words, the employer could owe a considerable amount of compensation to the worker because the worker paid the Social Security and Medicare taxes instead of the employer, due to the fact the worker was misclassified as an independent contractor.

What Recourse Do You Have If You Believe the Worker Has Not Been Misclassified?

The IRS recognizes the fact that you may have had a reasonable basis for classifying a worker as an independent contractor and not as an employee. Therefore, relief provisions are granted in such cases. However, you must file all the necessary federal information returns to establish your basis for relief. (See section 530 Employment Tax Relief Requirements).

What is the Voluntary Classification Settlement Program?

The Voluntary Classification Settlement Program (VCSP) offers employers the option of reclassifying workers as employees for future tax periods. It also provides partial relief from federal employment taxes when the employers agree to classify their workers or a class or group of workers as employees. Employers must meet certain eligibility requirements to be allowed to participate in this voluntary program.

Our attorneys at Stephen Hans & Associates are glad to answer your questions and provide legal guidance to help you comply with employment laws or provide you with representation in disputed employment issues.