While looking for a way to increase tax revenues, the IRS and many state governments are cracking down on how companies classify their workers. If your business uses independent contractors you should get ready for new scrutiny!
You may wonder – “What’s the big deal, so what if I use independent contractors”?
Well, it’s like this…….when a you as a business owner report payments made to independent contractors – you report those wages using a 1099 form. When payments are reported using a 1099 form, you as the business owner aren’t required to pay unemployment insurance, worker’s compensation insurance OR PAYROLL TAXES on that money.
Hiring independent contractors isn’t against the law, however, there are very strict rules about WHO/WHAT an independent contractor is and often times what you may feel is an independent contractor the IRS, the State Unemployment Department or the Worker’s Compensation Insurance people feel is an employee.
For additional information, including examples of just how serious the Auditors are about this, read this article from C N N Money.com Small Business