Businesses Have More Exposure Than They Think From State Department of Labor Examinations
It is a little known fact that various States share the results of their employment examinations with the IRS. The IRS is using this information to step up its own enforcement efforts by providing funds to various State Departments of Revenue for their use in increasing audit capacity. After the State has completed its audit, it provides its findings to the IRS.
The IRS uses this information to identify businesses that may be classifying employees as independent contractors. These businesses may not only be at risk for state unemployment taxes and wage and hour violations but may also have exposure for federal employment taxes, such as federal withholding, FICA, Medicare and FUTA taxes.
It is important that businesses establish contracts with their independent contractors and suitable documentation supporting the individual's "non-employee" status. These rules are complex and there are at least twenty factors to take into account. We are knowledgeable about the tests and can help ensure that you comply to the best of your ability. If you would like us to discuss this issue with you and work with your independent contractor documentation, please contact our Tax Manager; Terry Martin or call 215-675-8364.
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