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Misclassification of workers: Not just a 1099 issue

What happens when you are misclassified as an independent contractor? On a tax basis, payroll taxes are not withheld from your pay. This means you must make quarterly estimated taxes and pay self-employment tax on what you earn. You probably do not receive overtime pay or access to benefits such as health insurance or a retirement account.

It can be tough to figure out if your position has been misclassified. The practice happens across industries and it’s often well disguised. House cleaning, in-home care and residential construction are several of the industries known to misclassify employees as independent contractors.


The employer benefits

It’s not surprising that it happens. An employer can save money by avoiding:

  • The payment of payroll taxes
  • Overtime pay and measures to comply with the Fair Labor Standards Act
  • Workers’ compensation insurance and health insurance premiums

In addition, independent contractors generally can’t file for unemployment when a project ends or if they are fired without cause.

Bringing about change

You need to realize that you are not correctly labeled an independent contractor if your employer tells you what to do and how to do it. When an employer controls the details of your work, you are an employee.

In a June blog post, we talked about some of the requirements for filing taxes when you receive a 1099-MISC. When employment classification was never discussed at the start of the job, this form can come as a surprise.

If you have concerns that you have been misclassified, you can seek a determination from the IRS with Form SS-8.

When you have been misclassified, Form 8919 provides some help. This form titled Uncollected Social Security and Medicare Tax on Wages is used to calculate your share of uncollected social security and Medicare taxes. This will generally allow you to avoid filing a Schedule C and paying self-employment taxes. It automatically credits your social security record too.

When you have questions about misclassification, a tax attorney can provide answers. Then the attorney can assist in resolving any back taxes and help get you classified correctly going forward.

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