The IRS has announced a voluntary program that provides an opportunity for taxpayers to reclassify their workers for employment tax purposes. The contractor vs. employee controversy is one that has been on the radar screen for the IRS for decades, however, the actual attempts by the government to convert contractors to employees for payroll tax purposes, in our experience, have been few and far between.
The government of course would convert everyone paid by employers from contractor to employee status for one simple reason; for 2011 it adds roughly 12.4% of the Social Security wage base ($106,800 in 2011) to the federal coffers in the form of Social Security for each conversion. Certainly you could argue that this is nothing more than another money grab by the federal government to further fund its failed financial policies but it’s also a reflection of the inability of the IRS to prevail on audit when this item is raised as an issue.
Sarah Needleman and Emily Maltby in their article “Price of Reclassifying Workers” do a very nice job at providing background on the controversy and shed insight as to small businesses view on the matter.
In our opinion, whether you like our governments tactics for extracting more money from employers, or care much about its intentions, this is an opportunity for those businesses that feel exposed by this matter to “come clean” for a relatively modest amount.
See the Needleman/Maltby article at;
http://online.wsj.com/article/SB10001424053111903791504576588811797594764.html?mod=dist_smartbrief
