Risks for 1099 Employees and Independent Contractors

At present, the IRS is found challenging the status of all those workers with the status of Independent Contractors. Between the years, 1988 and 1992, the Internal Revenue Service reclassified over 400,000 Independent Contractors as employees. By doing this, the IRS collected around $52.5 million as taxes. During the year 1992, the IRS conducted nearly 1,700 business audits and reclassified around 90,000 workers as employees. By doing so, the IRS was successful in collecting $19 million as tax through tax assessments. If you happen to be a businessman using the services of Independent Contractors, your business might be in danger.

Rules on Making Tax Payments by Individual Contractors

It is important for business owners who are into hiring Independent Contractors to remain prepared and fully aware of the fact that the IRS has been reclassifying these contractors into employees. Failure to remain aware of this fact could cost the business owners quite a good amount of money, grief and even the chances of losing one’s business. There are many business owners who like to go with the rules when it comes to making tax payments.

 

So, what are the rules exactly? If a certain worker is classified as independent contractor, the particular business hiring the contractor must file Form 1099 with the Internal Revenue Service in circumstances when gross compensation for the contractor exceeds $600 during the tax year. On the part of the Independent Contractor, payments of the income taxes are compulsory along with the self-employment taxes also known as Social Security taxes. Independent contractors also need to make it a point to pay the worker’s compensation insurance premiums and the unemployment taxes along with the state income taxes. This actually means that in case an Independent Contractor gets a form 1099 issued, he or she is directly responsible for paying the due taxes. It is the responsibility of the independent contractor to make all the tax payments.

What if Individual Contractors Do Not Have the Assets or the Money to Pay the Taxes?

In case an independent contractor does not have the assets or the money to make the tax payments, he or she becomes a good candidate for getting his or her status reclassified. In simple English, it means that some other entity or individual is going to make the tax payments. So, who is the other organization or entity which would be making the tax payments? The IRS will actually go after the business or the person issuing form 1099 to the independent contractor in this scenario. The businesses that use the services or hire subcontractors or self-employed workers need to be very careful regarding using their services. They need to take care of the procedure in which they use the services and even the basis of using the services of such individuals.

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