Worker Classification Audits

Maryland Tax Attorney Advising Clients in Worker Classification Audits

Federal and state laws provide for strict fines and penalties when a business owner misclassifies a worker as an independent contractor.   Under the tax laws, a worker can either be classified as an employee or an independent contractor.  The distinction between the two classifications is very important because it impacts the tax obligations of the business owner and the worker at both the federal and state tax level. 

Determining whether a worker is an employee or an independent contractor for tax purposes can be a very challenging undertaking. Different states apply different factors to make the classification.  The IRS generally considers the worker’s “degree of control and independence” to be critical when determining whether an individual is an employee or an independent contractor for federal tax purposes.  As the IRS explains, there is no “magic” set of factors used in making the determination; rather “the keys are to look at the entire relationship.”  This means that businesses need to be very careful when classifying their workers and should seek out the advice of an experienced employment tax lawyer to help them through the process.

Misclassification of Workers

The federal government is committed to identifying and taking action against businesses who fail to follow the employment tax rules.  The IRS has uncovered a number of different schemes used by employers to avoid paying their employment taxes, including the misclassification of worker status.  When an employer classifies an employee as an independent contractor and has no reasonable basis for making such a classification, the employer may be held liable for employment taxes on that worker.  If the employer does have a reasonable basis for classifying the worker as an independent contractor, the IRS may relieve the employer from its liability to pay employment taxes on the worker.   The IRS also offers a Voluntary Classification Settlement Program (VCSP) which provides an opportunity for employers meeting VCSP criteria to reclassify their workers as employees for future tax periods and receive partial relief from the payment of federal employment tax liability. 

Discuss your Employment Tax Matters with a Skilled Legal Team

If you are a business owner with questions about worker classifications or think you may be targeted for a worker classification audit, you should consult with a skilled employment tax law team.   The consequences for misclassifying a worker can be harsh, including having to pay substantial back taxes and penalties and, in the most severe cases, you can even be subject to criminal prosecution.  

The attorneys at US International Tax Advisors have decades of collective experience advising clients on the procedures the IRS and the tax courts use to determine whether individual workers and groups of workers have been properly classified as independent contractors or employees.  We are a leading tax law firm representing clients throughout the Maryland region, across the United States and around the world.  We understand the sensitive nature of tax controversies and disputes and our lawyers will work with you to resolve your tax issues in a quick and efficient manner.  

Contact our Maryland offices today by calling (844) 796-8565.