Tag Archive for Worker Classification

Tax Court’s Jurisdiction Over Cases Where The Employer Did Not Properly Classify Its Workers As Employees

Classify Workers As Employees
Tax Court Case Involves “Section 530 Relief”

Reflectxion Resources, Inc. v. Comm’r, T.C. Memo. 2020-114| August 3, 2020 | Gustafson, J. | Dkt. No. 12017-16

-Opinion

Short Summary:  The case involves the analysis and discussion of the Tax Court’s jurisdiction over cases where the employer did not properly classify its workers as employees and seeks relief under section 530.

Reflectxion Resources, Inc. (the “taxpayer”), a medical staffing agency, hired travel therapists for one of its clients, Gevity. Under a services agreement, the taxpayer provided such staff to Gevity for 11 quarters. During the 11 quarters, it was Gevity who acted as employer of the staff and filed the respective employment tax returns. After such period and for the following 5 quarters, it was the taxpayer who filed employment tax returns. During all 16 quarters, the travel therapists were reimbursed travel expenses. Such reimbursements were never reported as wages for employment tax in all 16 quarters.

Read More

Written by | Posted in Section 530 Relief • Worker Classification

Present Law And Background Relating To Worker Classification For Federal Tax Purposes

Present Law And Background Relating To Worker Classification For Federal Tax Purposes

This document,prepared by the staff of the Joint Committee on Taxation, provides a description of present law and background relating to worker classification for Federal tax purposes.

I. WORKER CLASSIFICATION RULES
A. Present Law
In general

Significant tax consequences result from the classification of a worker as an employee or independent contractor. These consequences relate to withholding and employment tax requirements, as well as the ability to exclude certain types of compensation from income or take tax deductions for certain expenses. Some consequences favor employee status, while others favor independent contractor status. For example, an employee may exclude from gross income employer-provided benefits such as pension, health, and group-term life insurance benefits. On the other hand, an independent contractor can establish his or her own pension plan and deduct contributions to the plan. An independent contractor also has greater ability to deduct work related expenses.

Under present law, the determination of whether a worker is an employee or an independent contractor is generally made under a facts and circumstances test that seeks to determine whether the worker is subject to the control of the service recipient, not only as to the nature of the work performed, but the circumstances under which it is performed. Under a special safe harbor rule (sec. 530 of the Revenue Act of 1978), a service recipient may treat a worker as an independent contractor for employment tax purposes even though the worker is in fact an employee if the service recipient has a reasonable basis for treating the worker as an independent contractor and certain other requirements are met. In some cases, the treatment of a
worker as an employee or independent contractor is specified by statute.
Read More

Written by | Posted in Independent Contractor Or Employee

Classification of Workers: Could Section 530 Come to the Rescue?

William Rogers - Worker Classification

The IRS and employers often are at loggerheads over the classification of workers as employees or independent contractors. Typically, many employers want to to treat workers as independent contractors, while the IRS often determines that workers are misclassified employees. Sometimes, the issue winds up in the courts.

Fortunately, there might be a way for employers to obtain a measure of protection if the IRS challenges the classification of a worker or workers. With “Section 530 relief,” an employer may avoid adverse tax consequences from a misclassification of employment status. However, this special safe-harbor rule is only available if the employer can show it had a reasonable basis for treating workers as independent contractors.

A Brief History of Section 530

As we stated in the main article, Section 530 is part of the Revenue Act of 1978. Initially, it was scheduled to expire on December 31, 1979. After then being extended twice, it was made permanent by the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982.

In 1996, a paragraph was added to the existing Section 530 provision, requiring the IRS to inform an employer about the safe-harbor rule, when appropriate. This notification must be provided before the IRS begins an audit of the employment status of an employer’s workers.
Read More

Written by | Posted in Section 530 • Worker Classification

Worker Classification Questions—Employee or Contractor?

Annette Nellen

Worker classification—whether a worker is an employee or an independent contractor—is a longstanding and sometimes difficult issue. There are a few different classification schemes applicable to different types of laws (labor, tax, etc.). Employers tend to favor contractor status when possible to avoid payroll taxes, application of most labor laws (such as overtime), and state laws governing how someone is paid, sick pay, reporting, and more.

Read More

Written by | Posted in Payroll Taxes • Tax Controversy

Uber, Lyft And Others – Worker Classification In The 21st Century

I was surprised by the broad press coverage that a California Labor Commission ruling involving one ex-Uber driver (Berwick) received this past week (USA Today, 6/19/15; Los Angeles Times, 6/17/15;. New York Times, 6/17/15).  This ruling (6/2/15) found that someone who drove using the Uber app for less than two months was an employee rather than a contractor. As such, under California Labor Code Section 2802, the employer must cover “all necessary expenditures” of the employee in carrying out their duties or obeying the directions of the employer. So, key to this expense reimbursement rule is that the worker must be an employee.

In the California Labor Commission ruling, the driver says she drove 6468 miles in the 49 days she worked and incurred tolls of $256 and a traffic fine of $160.  Finding that she Read More

Written by | Posted in Tax Controversy

Would Your Beauty Salon Business Survive An IRS Worker Classification Audit?

I do not know of any business owner who wants to be audited by the IRS or their state tax authority. Audits can be simply random as “decided” by the IRS computer, or they can be triggered by certain characteristics of your business operation, for example how you’ve classified independent contractors or employees (especially if they apply for unemployment insurance, worker’s compensation benefits, or even welfare).

Do You Operate A Beauty Salon?

Here are three key items the IRS and state tax authorities look for if you are an independent contractor or if you use them in your business.

1. Is there a lease between the independent contractor and the owner? Read More

Written by | Posted in Audit • IRS • Small Business

Trends In Employment Law And Employment Tax

Among our business tax clients, we are seeing a rise in wage and hour litigation, either ancillary to, or independent of, their tax issues. In fact, recently I was giving a presentation to a group of business owners regarding this very issue, and one of the attendees told me that his business headquarters had been visited by the Department of Labor, Wage and Hour Division (DOL/WHD) that very day with a demand for records. What we are seeing at our law office could be coincidental; but, I believe it is the product of both an enhanced enforcement environment at both the federal and state levels, and a highly aggressive labor and employment law plaintiff’s bar. As the former Secretary of Labor, Hilda Solis, said in 2009, “Make no mistake, the DOL is back in the enforcement business.” Solis has since been replaced by Thomas E. Perez, but there is no indication that the DOL is easing its Read More

Written by | Posted in Corporate • Individual • IRS

Is That Worker An Employee? Part I

QUESTIONS AND ANSWERS ON WORKER CLASSIFICATION

If you own or manage a business that uses independent contractors, you need to know when you can or cannot treat a worker as an independent contractor. This article answers some of the common questions about worker classification.

INTRODUCTION

Misclassification of employees as independent contractors is now a common phrase uttered by state and federal legislators and regulators. State task forces have been formed to crack down on businesses that do not pay unemployment insurance and workers’ compensation premiums or withhold taxes for workers whom the state believes are employees and not Read More

Written by | Posted in Corporate • Individual • North America