THE IRS IS LOOKING AT INDEPENDENT CONTRACTORS

If you have been following my blog you know that I am concerned about the practice of classifying workers as independent contractors. I am not talking about booth renters, but rather the practice by many of simply not treating their workers as employees. This practice is good for the owner because they do not have to match Social Security and Medicare; pay Unemployment Taxes; pay Workman's Compensation; provide fringe benefits, or worry about the worker reporting their tips.

That sounds pretty good, but I don't think it will pass the IRS muster. If you provide control over the worker, most likely the worker is an employee. That is a discussion for another time.

Here is the issue that you need to be aware of. The IRS is now looking at worker classification. The IRS has just announced that it is going on the attack against firms that have misclassified workers. It is unveiling an electronic matching system to identify firms that issue 1099s with payments of at least $25,000 to five or more workers who don’t have any other sources of earned income. The Service suspects that in such cases the contractors may be employees for tax purposes. Businesses meeting these criteria will see employment tax audits in 2008.

You can't say that I did not warn you.