Discussion:1099 workers reclassed as employees
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Discussion Forum Index --> Tax Questions --> 1099 workers reclassed as employees
| 27 July 2007 | |
| Does anyone have experience with a situation like this?
I have been warning my client (roofing business) for years that he is playing audit roulette by giving all his helpers 1099s as subcontractors. Yep, one of them filed for unemployment and now Ohio is reclassifying them all (starting with 2004) as employees. To give you an idea of the scope of the problem, he pays about $40,000 per year divided among an average of 5-6 workers per year. Most are part-timers. Do any of you have any tips about what we should do to get records filed with IRS? He doesn't even have a federal ID number yet. Do we need to file 941s/W-2s for all years starting with the year Ohio is reclassifying the workers? If so, how do we show that the workers received 1099s and so already have paid their own FICA and FIT? Does the newly-classified employer still have to pay all the FICA and FIT that should have been withheld from the start? If so, how do the workers get refunds for the double-paid amounts? Is there a written guide anyone is aware of that I can consult regarding how to straighten out a mess like this? Are there traps that any of you are aware of that can be avoided if handled properly? Thanks for your help. I learn a lot from these discussions. | |
| 27 July 2007 | |
| in my experinece, the irs usually issues a penalty to the business of 25% of the total misclassified payroll. they may only do it for the year in question if your client cooperates, and agrees to correct the problem going forward. | |
| 27 July 2007 | |
| He could ask IRS for an audit and offer to pay under the provisions of Section 3509. AND start withholding and filing 941s immediately. This wouldn't upset the apple cart. On a related but non-tax subject, his workers should be covered by workers compensation insurance. He is lucky that he only got caught not paying employment tax. One guy gets hurt when he rolls off the roof and your client is going to be bankrupt. For yourself, I would keep good notes documenting advice you give him about cleaning up his act. | |
| 27 July 2007 | |
| IRC 3509 "relief" is statutory if the requirements are met, but only IRS can do that. If IRS does not have the staffing to do an audit on relatively small $$ here, they won't do it and we can't make 'em. | |
