Excerpted from: NEW JERSEY CPA • MAY-JUNE 2009

TAX TALK: WORKER CLASSIFICATION AUDITS

‘The misclassification of workers costs the U.S. Treasury billions of
dollars in lost revenue. It also puts honest businesses at a competitive disadvantage and deprives workers of legal benefits.

…Businesses that misclassify employees as independent contractors, which are not eligible for relief under Section 530, will be liable for the employment taxes on wages paid to the misclassified worker and subject to penalties. In 2007, the Construction Industry Worker Misclassification Act made New Jersey the first state to fully criminalize employee classification violations.

The current economic downturn is resulting in massive budget deficits, both on a federal and state level. Compliance and enforcement efforts will be enhanced in an effort to increase tax collections.’

*

Excerpted from: Newsweek Web Exclusive • JANUARY 2009

NEW AMERICAN JOB: ARE FREELANCE AND PART –TIME GIGS THE FUTURE?

‘In this economy, a job isn’t just a job: It’s a pastiche of part-time gigs, project contracts and fill-in freelance work. According to the Bureau of Labor Statistics, unemployment was up in December across all fifty states from the previous month and the prior year. Some 2.5 million full-time jobs have evaporated in the last 13 months, contributing to what’s being called the “gig economy.” But there is a convergence of other, more developed trends at play as well. Tight-budgeted company managers long ago embraced outsourcing to only pay for what they can use. A new generation of workers has 24/7 connectivity, lacks corporate loyalty, and thinks like (if the McCain/Palin contingent will give us back the word) mavericks. Put them together and you get gigonomics.

Hustling isn’t new to the writers, photographers, Web designers, musicians and other creative types who’ve been gigging for decades. “Now that everyone has a project-to-project freelance career, everyone is a hustler,” Tina Brown wrote recently, drawing attention to the trend at her Web site, The Daily Beast. What’s making Brown and others take notice now is the spread of independent work to higher-income workers, and to professions not known for their creativity, such as finance, law and human resources. And while an earlier generation of giggers may have embraced the hustle because it afforded them time with the kids or the chance to pursue their art, the newest entrants may be getting pushed into it by employers who no longer want to be saddled with their health-insurance bills.

Contingent workers–including part-timers, freelancers and contractors–consistently made up about 30 percent of the workforce between 1996 and 2005, according to the U.S. Government Accountability Office.”

*

Excerpted from: The Kiplinger Tax Letter • NOVEMEBER 2008

THE IRS IS ON A WARPATH AGAINST FIRMS THAT MISCLASSIFY WORKERS

‘It (the IRS) has new weapons for tracking down firms that violate the rules used to determine whether workers are really employees or independent contractors. The result: An increase in audits in a few months after IRS generates more leads.

Take a look at what the Revenue Service now has in its arsenal:

• More help from the states. The IRS has signed up most of the states to share payroll tax exam data. Thousands more audit referrals will result.
• Revved up document matching programs to pinpoint audit leads and lessen chances for no-change examinations. An electronic matching system, for example, enables the IRS to spot businesses issuing 1099 forms with payments of $25,000 or more to at least five workers who have no other sources of income
• Audit leads from workers. Taxpayers can now file Form 8919 along with their tax returns to tell the Service that they believe their employer incorrectly pegged them as contractors. A flood of these forms is likely to come because filing the 8919 allows an individual to avoid paying self-employment tax.’

*

Need to discuss any of the above? Want to learn more?
Contact an IAI advisor today.