Classifying a worker as an independent contractor, instead of an employee, can save a business a lot of money. With employees, an employer has to withhold taxes, pay employment taxes, and provide employee benefits. With independent contractors, a business withholds no taxes, pays no employments taxes, and provides no employees benefits.
But while misclassifying an employee as an independent contractor saves money for an employer in the short term, in the long term it can be more costly. Cheating employers can be liable to employees for unpaid wages and overtime pay, and state and federal tax agencies for taxes, penalties, and interest. An adverse decision can involve taxes, labor and employment law, benefits, workers’ compensation, unemployment insurance, and more.
The Internal Revenue Service’s (IRS) Voluntary Classification Settlement Program (VCSP) gives employers the chance to voluntarily reclassify workers as employees with limited federal employment tax liability for past non-employee treatment. The VCSP has now been expanded to include.
1. Employers under IRS audit as long as the audit is not an employment tax audit, and
2. Employers who did not file Forms 1099 for workers they erroneously considered to be independent contractors.
Employers wishing to participate in the VCSP Temporary Eligibility Expansion must agree to treat prospectively the reclassified workers as employees for future tax periods and they must affirm as part of the closing agreement with the IRS that they have provided to the reclassified workers and electronically filed all required Forms 1099 for the past three years.
Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.