Suppose you hire several “outsiders” to do some “inside” work. Are they employees or independent contractors? It can make a big tax difference.
Alert: The IRS is cautioning small business owners about misclassifications. It recently issued a reminder about the basic guidelines for determining the employment status of workers. (Week Tax Tip 2017-02, 5/1/17)
This isn’t small potatoes. If the IRS discovers an error, it will assess back federal employment taxes for the years in question, plus interest and penalties (see box below).
Here’s the whole story: If a worker is treated as an employee, the business must withhold federal income tax and the employee’s share of Social Security and Medicare taxes (collectively the FICA tax) from his or her wages. In addition, the business has to pay its share of Social Security and Medicare taxes plus federal unemployment tax (FUTA). Finally, your small business is require...(register to read more)