» Changes ahead: Who gets a W-2, 1099

Changes ahead: Who gets a W-2, 1099

May 30, 2008 by Carol Katarsky
Posted in: 1099s, DOL, Hiring & training staff, In this week's e-newsletter, IRS regs, Latest news & views, Tax compliance

Those vendors that A/P has been paying — are they actually employees? The feds have been threatening it for awhile, and now here it is: The first bill aimed at making it harder for your company to justify classifying any workers as independent contractors (ICs).

Of course, if they aren’t ICs, they’re employees — in either event, it means Payroll and A/P need to be in constant commuication about who handles payments, tax reporting, etc.

Among other changes, the bill (H.R. 5804) would shift the burden of proof so that companies like yours would have to proveworkers were actually ICs — that’s a change from the current system where IRS has to prove that they aren’t ICs.

Worse, to prove your case, you’d have fewer “reasonable causes” to rely on. Under this bill, your company would have to show it relied on a prior judicial ruling, technical advice from IRS, prior audit findings or similar information. Classifying a worker as an IC because it’s standard practice in your field would no longer cut it.

In addition, the bill would increase the penalties for misclassifications.

Do you have experience with misclassified workers (or suspect you have some on the books that haven’t been uncovered yet)? Tell us about it in the comments

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3 Responses to “Changes ahead: Who gets a W-2, 1099”

  1. Margery Schaffer Says:

    Is there a list of requirements that the IRS says proves a Vendor is an independent Sub-Contractor ?

  2. John Zuanich Says:

    There used to be the “20-Factor Questionnaire” the Service used for classification testing, but I believe it was simplified several years ago. Will or has the Service published new criterion in support of H.R. 5804?

  3. D Powers Says:

    We just completed an IRS audit and were faced with several misclassified IC’s. If you need to classify an IC or employee, IRS Form SS-8 is the safest way to make the determination, let IRS do the work for you.


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