Recently the IRS released some tax tips for small business owners and self-employed individuals. One critical reminder for all business owners: correctly identify workers as either employees or independent contractors. Misclassifying an employee as an independent contractor can result in a deficiency in the employer’s taxes paid, as the employee’s taxes were not withheld, and this can further lead to an assessment, penalties, interest, and even an audit.
To determine whether a worker is an employee or an independent contractor, the IRS uses three standards: behavior control, financial control, and relationship of the parties. For instance, if a company controls what and how a worker does their job, as well as supply the worker with tools and reimburses their expenses, that worker is an employee of the company, and therefore the company is liable for employment taxes to that worker. For more information from the IRS’ recent Small-Business Week, click here.
If you have any questions on worker classification, contact one of our attorneys here.