EXTRA! EXTRA! ... Taxes this year! | 281-210-2450 | INFO@CORREAPEARSONANDASSOCIATES.COM

Are Your Employees Classed Correctly?

Date: July 1, 2022

Are Your Employees Classed Correctly?

There is a big crack down going on right now with all the states. The IRS is on a reclassifying frenzy– many 1099 independent contractors are being reclassed to W2 employees. Business owners are getting slapped with tens to hundreds of thousands of dollars in back payroll taxes (including interest and penalties! OUCH). Are you one of many business owners afraid this may also happen to you?

It is always a good idea to be proactive and have good financial support on your side. The right CFO will help mitigate stress by answering your financial questions and give you sound advice on things such as classifying your employees correctly, so you don’t have to worry. If you are looking currently looking for a CFO, you may be wondering how to determine if your employees should be W2 or 1099 independent contractors. If one or more of the below is true, then your best bet is to make that person a W2 employee:

  • The employer controls when and how they work
  • The employer provides tools and supplies to perform the job
  • The employer makes up 80% or more of the employee’s total income

Many employers prefer to pay 1099s as there is no payroll tax – however, it is a good idea to follow the above-mentioned guidelines, so you won’t have to worry about reclassification and paying thousands in fines and back payroll taxes. But what if you are afraid that you might be on the IRS radar because you have 1099 contractors that you now realize should be W2 employees? Good news – the IRS has a program for you to rectify that.

The Voluntary Classification Settlement Program (VCSP) is for those business owners that would like to change their classifications going forward on their employees. There are some qualifying rules of course. First off, you must have consistently treated the workers (that will be reclassified) as 1099 independent contractors – meaning you also have filed all the required forms in the last three years. Secondly – you can’t currently be under an employment tax audit by the IRS, or already under a reclassification audit by the Department of Labor (OR by a state government agency). If you’ve been audited in the past for your worker classification, you can still be eligible if you complied with the results of the audit. The benefit of the VCSP is that you will only pay 10% of the employment tax liability that would’ve been due (on the most recent tax year). You won’t be liable for any penalties or interest (whoo-hoo!) and will not be subject to an employment tax audit for the prior years. Going forward, you will treat your employees as W2 employees, so keep that in mind.

Navigating the complexities of the tax code can be overwhelming and stressful. Your best bet is to have an expert on your side, giving you financial guidance. A CFO can help prepare you and structure your plan of growth to help your business succeed. If you are looking for one, we are happy to help. Click here to schedule a complimentary consultation with one of our business growth experts and we would be happy to give you a no strings attached assessment of your business.

 

 

Share: