Although hiring independent contractors can reduce the paperwork, tax burden and hassles associated with bringing on employees, Christopher Ezold, a business attorney and tax partner with the Ezold Law Firm P.C., a Philadelphia-based employment and business boutique, warns that employers can expect contractor classification changes by the IRS in 2012.
The IRS and the U.S. Department of Labor are partnering to uphold an information-sharing memorandum with 11 states that ensures employers are not misclassifying employees as contractors, and employers in all states can face random audits throughout the year.
According to the IRS, it intends "to end the business practice of misclassifying employees in order to avoid providing employment protections." In fact, a report by the U.S. Government Accountability Office finds that more than 80 percent of workers at inspected construction sites were misclassified as independent contractors in one particular region. The IRS estimates that misclassifying workers could cost $7 billion in taxes and penalties, which could add to federal coffers during the next 10 years.
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