Employee or 1099 Contract Labor? Fix the Problem and Get Right with the IRS … For Free

Important Update:  The IRS wants to forgive all your 2013 taxes and penalties for mis-classified 1099 contractors who should be employees.

We first wrote about this in 2011. Now the IRS has extended the program and the first part of the new year is the best time to get this done. Start 2014 with no more contract employees. 

Paying some employees as 1099 contract labor (independent contractors) seems like a good deal:  You save time and paperwork… and a bunch of money on taxes.  But it’s not legal, and the penalties are harsh.  It’s time to come clean and use this new program to “get out of jail free”.

Why 1099 Contract Employees are So Dangerous

There are at least 5 financial consequences and they are all expensive…

  • Back Taxes… plus interest and penalties.  Not just income tax, but FICA, FUTA and  SUTA too!
  • Personal Liability…and penalties.  Each executive could get a personal bill for 100% of the tax, interest and penalties.
  • Unpaid Benefits… at max value.  If you can’t estimate a value for benefits, no problem … the IRS will use a national average of 30% of wages.

Pay Taxes on 1099 Contractors in 2014

  • Other Perks…and unreimbursed business expenses.

So get right with the IRS… Right NOW

Avoid all these payments, pains and problems by taking advantage of the IRS amnesty program.  Called the Voluntary Classification Settlement Program, it grants virtually blanket amnesty for all prior years, while allowing you to make things right at a discounted rate for the current tax year only.  To my mind, this is the best deal to come out of the IRS since … well… ever.

Ready to start?  Solving this expensive problem is actually cheap and relatively quick.

How to Convert 1099 Contractors to Employees in 2014

  1. Take the IRS test for contractor status.  If you have any suspicion that your contractors should be employees, go to step#2.
  2. Read the FAQ and calculate the amount of taxes you’ll have to pay at the time of conversion (Note: filing early in the year will save you big bucks!)
  3. Then move on to form 8952 “Application for Vountary Classification Settlement Program” … for help, grab the instructions.
  4. Finally, check that you modified 8952 as instructed in the Application Process notes

Or, just give us a call.  This can be a tricky issue and we’ll be happy to talk you through it.

Dedicated to your (after-tax) profits,

PS: The FUSE team has helped other clients file for amnesty and will be glad to help you solve this problem.  Just drop me a note at the ASK DAVID page.

Originally Published

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