IRS Officially Announces New Program to Audit Independent Contractor Businesses
(snip)"Auditors crack down on 'independent contractors'
(CNNMoney.com) -- If your business uses independent contractors, get ready for new scrutiny. Hoping to boost tax revenue, the IRS and many state governments are cracking down on how companies classify their workers.
When employers report wages for independent contractors on IRS form 1099, rather than a W-2, they aren't required to pay unemployment insurance, worker's compensation insurance or payroll taxes for them. But the rules governing which workers are genuinely "independent" are strict -- and often flouted.
The Internal Revenue Service launched a program last month that will randomly examine 6,000 companies over the next three years for employee misclassifications. The federal government estimates it will raise $7 billion over the next 10 through tighter enforcement.
The IRS audit program is just the beginning of what will be "a new era of compliance," says Gene Zaino, president and CEO of MBO Partners, a services firm that specializes in the independent contractor market. "Most states are now sharing data with the IRS, and many have set up task forces specifically [to address] misclassification. It used to be that if a business ran into trouble with a state labor department or with the IRS, the issue was isolated. Now, any kind of audit or compliance finding can set off a domino effect where the other agencies will get in on the action. "
Getting audited can be scary even for businesses that keep everything by-the-book. Chris Daly, co-owner of Kinespirit fitness studios in New York City, got an audit notice in January from the New York State Department of Taxation's Unemployment Insurance Division, which wanted to probe Kinespirit's use of contractors. Like more than 30 states, New York has run out of money in its unemployment compensation fund and is borrowing from the federal government to keep paying claims."(snip)
(snip)"Following the rules: So what's the correct definition of an independent contractor? It depends on who you ask.
Some business advisors say a true independent contractor is employed by a separate corporation or legal entity, either one they own or a third-party firm. That rules out freelancers who don't formally set up a business structure to house their 1099 income."(snip)
The obvious take-away from this news story is that both the IRS and cash-strapped states are extremely interested in forcing businesses who have traditionally classified their workers as 'independent contractors' to now reclassify these workers as 'employees'. Such reclassification would result in the businesses being forced to pay for unemployment insurance premiums, for worker's comp insurance premiums, for mandatory 'full time' employee benefits ( a la the new national health care law ) etc. ... as well as to institute full worker wage / income reporting and tax withholding from employee paychecks.
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Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
Yeah, this is really the first year I file under 1099, for more than part time hours. I haven't started my taxes yet, & I am truly scared. I am going to take an honest deduction, from a contractor that ripped me off.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
Who has not been expecting this?
Cash businesses, corporate or not, are or should be subject to increased scrutiny. I support this increasing equalization of responsibility. Long overdue IMO.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
^^^ actually, relayer, many dancers including myself are in complete agreement with you. Of course, we also accurately report our incomes and pay all appropriate taxes.
This new 'independent contractor' audit angle is likely to have a significant impact on such businesses as 'chain' strip clubs. For example, the IRS would be crazy not to investigate such corporations as DejaVu ... who already have a public record history of 'losing' DOL cases involving dancers claiming 'employee' status. Enforcing 'employee' status for all DejaVu dancers would result in a huge increase in unemployment insurance premiums and worker's comp insurance premiums to be paid by DejaVu based on a percentage of DejaVu dancer incomes. Enforcing 'employee' status would also route every dollar of DejaVu dancer earnings through the corporate payroll system ... with said dancer earnings fully reported to the IRS and with estimated taxes withheld from (weekly) dancer paychecks. Enforcing 'employee' status would also force DejaVu to provide mandated 'full time' employee benefits for dancers who work more than 24 hours per week.
On the other hand, the above changes would also result in both a significant reduction in the take-home earnings of DejaVu dancers, a reduction in DejaVu dancer weekly working hours to avoid exceeding the 24 hours per week 'full time' employee cutoff, etc. And nothing would prevent the IRS from investigating the past years' 'independent contractor' tax return filings of DejaVu dancers !
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
It may result in more dancers working (or being forced) for more than one club, which would be in the list of qualifications for IC status. If there were not so much abuse, this 24 hour designation would not have been established. Just too much playing fast and loose with rules governing everyone else.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
^^^ complete agreement. The end result of the new health care law's formula for determining 'full time' employee status at ~27 hours will have the result of guaranteeing that 'part time' employees won't be assigned more than 24 hours of work per week ! For clubs now coming under increased scrutiny for 'mis-classifying' their dancers as independent contractors instead of as employees, staying below the ~27 hours per week legal threshold is probably a future certainty. It is also a future probability that a 'two class' dancer arrangement will evolve, with the first class dancers getting weekends and the second class dancers getting weekdays ( since neither can exceed 24 hours per week).
The risk for the clubs of course is that if a dancer is allowed to work 40 hours per week, and independent contractor classification is 'lost', then the club becomes responsible for paying state unemployment insurance premiums, worker's comp premiums, future national health care premiums etc. As was just posted in another forum, the Lusty Lady ... which is one of the very few clubs which classifies its dancers as 'employees' ... is about to close its doors. Undoubtedly, massive increases in state unemployment insurance premiums played a major role.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
Many smaller clubs would not have enough employees to require healthcare insurance premiums. Further many smaller clubs already have the two-tier work assignments. This would push more clubs into that operating mode.
This now classification incentive is a more explicit definition that was previously published by the IRS in Publ 17; the IC designation has gradually become harder to obtain in most all areas of "contract" work.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
^^^ also true. And every time that the subject of dancers being independent contractors has wound up before a DOL or court judge, the ruling has been that dancers should be treated as 'employees'. Additionally, certain states like California have already defined dancers to be statutory employees. Thus there is growing pressure for clubs to start treating dancers as 'employees' ... for better or worse.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
now the question should be why we were stupid enough to elect obama as president. we didnt have these issues before him.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
^^^ I'll try and 'spin' your point in an economic direction, in keeping with Dollar Den. Put simply, politicians who favor increased public sector spending on social welfare programs and on gov't employees also require an increased source of tax revenues to fund that spending. Obviously, it is much simpler and easier for the gov't to collect taxes from 'employees' ... where by law their earnings must be fully documented and automatically reported to the IRS ... where by law their tax deductions for business purposes are severely limited ... where by law both they and their 'employer' must pay into state run unemployment insurance and worker's comp insurance programs etc.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
Quote:
Originally Posted by
MistyDoll
now the question should be why we were stupid enough to elect obama as president. we didnt have these issues before him.
AS far as being "stupid enough", we elected Bush TWICE. And look at what we got from him. It will take us a decade to get out of all the tangles he put us thru.
But I think you miss the point. Dancers are largely "treated" (some would say exploited) by clubs as employees under the control of the club's management. Either clubs must be able to prove that their dancers are treated as independent contractors, or they must treat them as employees. And dancers must treat themselves as independent contractors or demand to be treated as employees. What we have now is a corrupt and arbitrary system where each class treats the other informally in a way where they get as much out of the relationship as they can muster, regardless of tax laws which everyone else is obligated to follow. With the result that taxes on their earned income are not paid by them, but by everyone else. (This does not apply only to strip clubs but to all cash businesses.)
There is an informal IRS guideline for determining independent contractors vs. employee status. I've posted it here before, but SW people just ignore it. Or complain about it.
Re: IRS Officially Announces New Program to Audit Independent Contractor Businesses
Quote:
Originally Posted by
Melonie
^^^ I'll try and 'spin' your point in an economic direction, in keeping with Dollar Den. Put simply, politicians who favor increased public sector spending on social welfare programs and on gov't employees also require an increased source of tax revenues to fund that spending. Obviously, it is much simpler and easier for the gov't to collect taxes from 'employees' ... where by law their earnings must be fully documented and automatically reported to the IRS ... where by law their tax deductions for business purposes are severely limited ... where by law both they and their 'employer' must pay into state run unemployment insurance and worker's comp insurance programs etc.
Trying to put a little less idealogical "spin" on it..., it's been the tax law for many years, so whatever the short-term incentive, these issues have been on the edge of stronger enforcement for many years.
Because of the economic collapse at the end of the Bush years, the government has been able to collect much less tax revenues than expected and budgeted. So they have come up short. This is because people who don't work or companies that don't sell, don't pay nearly as much tax as when things are rolling along in the normal way. The Bush and Obama stimuli are, in effect, investments in restoring the "normal way" to where tax revenues will return to what is necessary for budgerary purposes. This brings up the question of why is the budget so large? Which is valid. But the stimulus was necessary and is working for corporate America. Which brings up the question of why just corporate America? Basically because part of the stimulus was to restore a viable banking/investment system and now that the huge financiers have a "guaranteed bailout system" investors think we are now restored.
Far from the truth. Unless something drastic is done with applicable laws and regulations we have merely staved off a much larger colllapse for a few years and assisted those fat cats to widen the class income gap to even further unjustifiable disproportionate levels.