Randolph Law Firm, P.C.

Worker classification and its effect on employment tax obligations, P.2

Previously, we began looking at the issue of worker classification and its implications for employment tax obligations. As we noted last time, when the IRS finds that a business does not have a reasonable basis for classifying an employee a particular way, the business may be held responsible for employment taxes. In such cases, businesses may be able to settle with the IRS for a reduced tax rate or to obtain partial relief in exchange for reclassifying workers as employees for future tax periods.

Federal tax law does allow businesses to avoid having to pay employment taxes for misclassified workers when they are able to show that the worker already paid those taxes, but proving this can be difficult. For one thing, it can be hard to get in touch with workers who are no longer with the company. Also, workers still with the company may not be willing to sign the forms necessary for the IRS to grant the business relief. 

A recent Tax Court decision may make it easier for businesses to challenge the IRS in worker misclassification cases. The court ruled that federal taxpayer privacy law does not prevent the IRS from disclosing workers’ income tax compliance to employers. The decision means that employers may be able to request tax records from the IRS regarding their workforce.

It isn’t clear how much of an impact the ruling will have, as businesses still need to consider the most cost-effective way to resolve worker misclassification cases. Regardless of the circumstances, businesses can benefit from working with an experienced tax attorney to ensure they pursue the most effective resolution to the case. 

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