Some U.S. companies are ignoring IRS rulings that they misclassified workers as independent contractors.
A report by the Treasury Inspector General for Tax Administration found 19 percent of employers in a study of a sample of decisions did just that.
The report stems from a review of Forms SS-8, which can be filed by either workers or companies requesting the status of a worker be determined by the IRS. The report reviewed a sample of 5,325 determinations from calendar year 2009 where workers were found to be employees, not independent contractors. The cases represented 5,067 employers.
Employers that complied with the determinations — which included issuing one or more Forms W-2 — numbered 856, or 17 percent.
However, 19 percent, or 940, appeared to not have complied and issued Forms 1099-MISC. The report estimates a portion of those firms may qualify for tax relief, but the remaining 778 employers appear to have not properly reported an estimated $1.2 million in employment taxes.
The report also found 65 percent of employers, or 5,067 firms, did not issue a 1099 or W-2 either because the employee no longer worked for the employer or the compensation was not reported to the IRS.
The report called on the IRS agencies to improve coordination to increase employer compliance.
Other information in the report included:
- An employer can avoid paying approximately $3,710 per worker per year in employment taxes on an annual average of $43,007 in income paid per employee when a worker is misclassified.
- The IRS’ last comprehensive worker misclassification estimate was for tax year 1984, according to the report. It found at the time that 15 percent of employers misclassified 3.4 million workers as independent contractors for an estimated tax loss of $1.6 billion.