IRS Stance on Contractors

This post is really for our US readers (about 2/3 of the total), but the Internal Revenue Service has proposed a tax amnesty program for those companies that are using contractors when the contractors are really employees. Basically, without getting too technical, if you direct the work of someone in terms of time to be at a place, and they work regular hours, such as 8 a to 5 p, and you provide them tools or other things they need to do their jobs, but are paying them x per hour as an indepnedent contractor, you might have an employee.

If this is the case, if you can review the situation with a employee consultant, if you can afford it, or your CPA, if you have one.

If neither of those qualifications can be met, but you really think you should do the right thing, the IRS won’t fine you if you turn yourself in. On the other hand, if, because the IRS is understaffed, you might decide to ignore the offer. However, if you ignore the offer, you’re opening yourself up to prossible prosecution down the road if the IRS audits you on taxes and looks at your 1099 payments. They’ll also go back and audit your contractors, to make sure they paid taxes on what you paid the contractor. If they haven’t paid the taxes, you could be liable for those taxes, especially if your contractors are really employees.

So, if you don’t use the amnesty period, you might be opening up a real can of worms.

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3 Responses to IRS Stance on Contractors

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