Comments on: Heads up: IRS audit blitz headed your way

By: Alert: Feds delay records audit till February | HRMorning.com | Your daily dose of HR

Fri, 04 Dec 2009 11:02:24 +0000

[...] previously reported, the Internal Revenue Service was gearing up for the audits to uncover unpaid business and payroll [...]

By: Robert

Robert — Mon, 26 Oct 2009 20:01:01 +0000

Cheryl,
In past audits I have seen where the IRS charges the following:
Social Secuirty – Both the Employer and Employee portion
Medicare – Both the Employer and Employee portion
Federal Income Tax – Usually a flat rate like 20%
State Income Tax – Sometimes they will also charge a flat rate for state taxes as well.

In worse case, they will treat the amount you paid you employee (formerly known as your independent contractor) as the net check and then you have to gross up the check to cover the taxes listed above. For a $1,000 payment to an I/C you could end up paying something like an additonal $600 or so.

Sometimes you can offset the amount you have to pay if it can be shown that the I/C reported the income and paid SE and Income Taxes on this amount.

Best Bet is to have a solid case on your I/C’s and in our Company’s case, when in doubt, we pay as an employer.

By: Cheryl

Cheryl — Fri, 16 Oct 2009 16:18:52 +0000

Thanks Melissa. I am familiar with the reguirements and regulations regarding the difference between an IC and a employee. I was just wondering what the IRS does when it determines you have been paying an employee as an IC. What does the fine involve, what, if any, taxes are due from the employer, is anything due from employee who has been filing as an IC using a 1099 etc. ?

By: Melissa

Melissa — Thu, 15 Oct 2009 22:22:45 +0000

Cheryl, it has less to do with whether or not they get a 1099 (because that just takes care of income tax and not payroll and labor taxes) than whether they meet certain requirements as truly being “independent”. For example…do they use your equipment and facilities? Do you closely dictate how they get their work done…not just that it gets done? Do they have to work set hours? If you are treating them like all of your direct employees but paying them as an IC you could get dinged. The IRS has a publication (Pub 1779) that outlines the test for IC status. There is also a form…Form SS-8. Or if you are a member of SHRM or a payroll organization they should be able to provide the questions you should be asking.

By: Cheryl

Cheryl — Thu, 15 Oct 2009 20:01:24 +0000

What are the penalties if you have employees that have been paid as IC with 1099’s? Does anyone know?