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Article Date:
July 2015

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How to Avoid Thousands in Federal Taxes and Penalties If You Misclassified Employees as Independent Contractors

Estimated tax tip savings. If you realize your independent contractors should be classified as employees, the IRS Voluntary Classification Settlement Program can help. You’ll avoid paying thousands of dollars in back federal employment taxes, interest, and penalties for each misclassified worker.


If you’re like many business owners, you’d rather hire independent contractors instead of employees. They make your life easier. Contactors save you paperwork and thousands of dollars in federal employment taxes. And you don’t have to pay employee benefits.


No wonder so many businesses want independent contractors.


But some employers struggle with figuring out stuff like how to give their workers the right to control the work. They try, but miss the mark.


And since misclassified workers cost the federal government billions in uncollected employment tax dollars, the feds want you to hire your workers as employees. To make that more likely, the government doesn’t make it easy to hire independent contractors.1


Your Boo-Boo and the Can of Worms


Let’s suppose you just read an article about a business that sounds like yours. The business owner had independent contractors, just as you do. The article says the tax court ruled that the independent contractors were employees.2


So the owner owed the IRS big money.


That’s when you said, “Uh-oh.” You realized you made a boo-boo—you misclassified your workers. But there’s good news: The IRS hasn’t caught on to you. Yet.


If, under the tax law rules, you misclassified your workers, you could end up paying thousands of dollars per worker in back federal employment taxes, interest, and penalties.


You want to fix your boo-boo. But how can you make those contractors into employees without opening the can of tax, interest, and penalty worms?


Here’s how. ... Log in to view full article.

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