U.S. Cracks Down on ‘Contractors’ as a Tax Dodge
Please weigh in on this one...it's a hot topic!!!
As many of you have been reading the PSC Blog Train has been addressing and warning that the US Government is "circling up the wagons" to attack corporations who misclassified employees to recover "lost tax".
Below we have recapped today's NY Times article that gives greater detail on the movement by the Obama Administration to crack down on Independent Contractor Payroll Tax avoidance. However, what troubles PSC is how the administration is going about this. We feel that clearly the rules of engagement of these workers has to be cleared up. The
IRS 20 Point Test lends itself to a lot of ambiguity and makes enforcement and compliance difficult. We would like to see the Administration first address the policy surrounding Independent Contractors/1099 in order to simplify the classifications with the tax laws. This would enable businesses who employ such resources the ability to comply and pay the appropriate tax. Compliance is a far less expensive way to get the tax revenue than law suits and penalties.
Here is a recap of the article that ran in today's The New York Times (Click the link for the complete article): - Federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees as independent contractors.
- Federal estimates are that the crackdown will yield at least $7 billion
over 10 years.
- Companies that pass off employees as independent contractors avoid
paying Social Security, Medicare and unemployment insurance taxes for those workers.
- Companies do not withhold income taxes from contractors’ paychecks, and several studies have indicated that, on average, misclassified independent workers do not report 30% of their income.
- Misclassifying can mean a 20 or 30% cost difference per worker.
- A Harvard study found that 4.5 percent of Massachusetts workers were misclassified, while a Cornell study concluded that 10 percent of New York’s private-sector workers were.
These are some of the highlights of the article. I hope you will let us know how you feel and take advantage of our Risk/Reward Assessment to help determine if you might be subject to this type of decision.