Classifying Employees vs. Contractors



A recent story in the Wall Street Journal highlighted a trucking company facing massive penalties for misclassifying workers. Many of these workers were classified as independent contractors, when they were actually employees. The incorrect classification allowed the trucking company to avoid paying employee benefits and filing W-2's for employees. This is a fairly serious issue - the penalties could reach $2,500 per violation. For more on that story, visit the Wall Street Journal

Investigations continue to determine if this misclassification was intentional. We’d like to take a moment to review the differences between employees and contractors, to help ensure you’re filing correctly. 

So, what makes a worker an employee vs. a contractor? 

An employee has an ongoing relationship and agreement with the employer. The employer decides the when, where, and how of the work. The employer provides equipment, materials, and tools. eFile the employee's W-2 through Tax1099. 

The contractor decides their own when, where, and how of the work. The contractor provides their own equipment, materials, and tools. The contractor may bill based on completion of a service, rather than by hour. This is not always the case, but can be one indicator that a worker is a contractor. Contractors receive 1099 forms.  

As you can see, worker classification is not always clear-cut. If you’d like to go more in depth, and read about some example workers, click here. 

What if, after reading through these guidelines and re-evaluating some of your workers, you realize you’ve filed incorrectly in the past? Good news! The IRS has instituted the Voluntary Classification Settlement program. For more on that, watch this video from the IRS: 
https://www.youtube.com/watch?time_continue=15&v=LxOLcYh2xfE

If approved for this program, you’ll be able to retroactively correct the worker classification error without having to pay federal taxes for the past. According to the statement from the IRS, you might be eligible for the program if you:
  • Have consistently treated workers as contractors in the past
  • Have filed all necessary 1099 forms for those contractors
  • Are not currently being audited by the IRS, Department of Labor, or a state agency for employment taxes
To begin the approval process, you’ll need to file Form 8952. We don't currently offer this form on our platform, but we want to let you know that it exists to help you stay in compliance. 

Here at Tax1099, our priority is helping you complete a fast, accurate, and secure eFiling. Our system is configured to keep you in compliance. We can assist you with collecting and validating vendor information via our W-9 eSolicitation and TIN matching tools. As long as you make sure your worker classifications follow IRS guidelines, your filing can be penalty-free. Get started today!

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