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Androvett Blog

by Dave Moore at 3:50:13 pm

Tax Attorney Todd Lowther: IRS Offers Amnesty for Employers That Improperly Classify Workers

We’ve all read about amnesty offered to individuals who turn in unwanted handguns and for deadbeat dads who are behind on child support payments.

Now, the IRS is offering its own sort of amnesty to employers who previously improperly classified workers as consultants or contractors, rather than as employees to avoid the costs associated with hiring them (such as unemployment, worker’s compensation and overtime).

As the San Francisco Chronicle writes:

Under the amnesty program, if an employer that is not already being audited voluntarily reclassifies its employees, it will pay a fraction of the employment taxes due for the most recent year, no interest or penalties and will not be subject to an IRS employment tax audit for past years. But it's not a get-out-of-jail-almost-free card. The employer could still be liable for unpaid state unemployment insurance and workers' compensation premiums. Workers who had been misclassified could sue to recover pay and benefits they might have been entitled to.

Reclassifying workers under the IRS program could even encourage state agencies and workers to pursue such claims…

Still, the IRS initiative has its upside, according to Todd Lowther of the Houston office of Thompson & Knight: “The program provides partial relief for eligible companies in allowing them to pay only 10 percent of the employment tax liability that would otherwise have been due in prior years. This essentially means that a business can ‘turn itself in’ to the IRS before being audited and eliminate the risk of IRS penalties for misclassifying employees.”

Lowther says, however, that companies need to consider any potential liability under state employment law before pursuing coverage under the IRS program.