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If You Have Misclassified Contractors, This One’s for You

October 10th

One of the stickiest issues surrounding owning a small business is the issue of independent contractors versus employees. The main difference between the two sectors is that an independent contractor is an individual that is retained by a business to do a certain job for certain amount of time. An employee is an individual who is hired by the company to work exclusively for that company for an extended period of time. This may sound like it is a fairly large divide between the two classes of workers, but for some businesses who have long-term contractors, the line between what is considered an employee and what is considered an independent contractor may be confusing, and if you are found to have unpaid taxes, it can lead to trouble with the IRS.

Why Is the IRS Concerned?

Insofar as the IRS is concerned, their main issue is that businesses pay taxes in order to obey tax laws on employees, but the tax laws regarding independent contractors is slightly more complex. Generally speaking, for independent contractors, the contractor is responsible for paying taxes out of a Gross received salary. This is definitely different from employees, where the employer is responsible for paying the taxes and the employee receives a paycheck after the taxes are deducted.

Understanding the difference between independent contractors and employees can be a complex business when it comes to keeping up to date with tax laws. If you need more information regarding your small business and the relationship of the workers that you rely upon, be sure to check out the Employer’s Tax Guide, as well as the Employer Supplemental Tax Guide for more information. In the event that your question is not answered by either one of these documents, you can always contact the IRS directly through their website at www.IRS.gov.  Another good source for information could be a tax attorney or tax lawyer.



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