The IRS’ Treasury Inspector General for Tax Administration has issued a report pushing for greater scrutiny of workers labeled as independent contractors.
The IRS estimates that millions of workers are misclassified as independent contractors instead of employees, thus avoiding the payment of employment taxes. The issue adversely affects employees, the IRS states, as the employer’s share of taxes is not paid and the employee’s share is not withheld.
The Determination of Worker Status Program allows either a business or worker to request a determination letter from the IRS regarding a worker’s federal employment tax status as an employee or independent contractor. However, an audit to assess how this program was working effectively found the program has faced a growing inventory of cases, longer processing times and limited employer adherence to its rulings. It has implemented new pre-screening techniques that have the potential to reduce the time required to process cases while improving the quality of the inventory.
Click here for an article on Forbes.com on the IRS’ efforts to correct the issue and what it may mean to businesses.