Here is a relevant article regarding the Internal Revenue Service cracking down on misclassified filings of independent contractors. Many businesses attempt to avoid paying regular payroll taxes by treating employees as independent contractors. Mike Periu, who is the founder of EcoFin Media writes “As both Federal and State budgets become more strained, the IRS and state tax authorities sharpen their pencils further to extract as much in unpaid taxes possible. The next target: misclassification of employees as independent contractors.”
In the article he describes all the taxes that are avoided when classifying a worker as an independent contractor. He goes on to explain the enforcement actions that are taking place, the penalties a company may incur by incorrectly using the 1099. In addition, a new law is making it’s way through Congress to stiffen these penalties and require the States to help the IRS find situations of misclassifications.
There are very clear guidelines regarding who is an employee and who is an independent contractor. Generally if you discuss in any form; where someone should be, what they should do, and how they should do it – they are an employee. An independent contractor is a sub-contractor who gets a job done using their own tools and know-how on their own time schedule.