What Happens if the IRS Finds that Your Company has Misclassified Employees as Independent Contractors?

The United States government has been ramping up enforcement efforts on companies that are misclassifying workers. Illinois businesses must ensure that all of their workers are properly classified. Illinois state agencies, the Department of Labor (DOL), and the Internal Revenue Service (IRS) are all actively pursuing misclassification issues.

Perhaps there is no more frightening government agency to deal with than the IRS. If your company has misclassified employees and you are facing IRS action, you need to be ready to take action. In this article, our top-rated Chicago payroll tax lawyers explain what you need to know about the IRS and employee misclassification.

What is an Independent Contractor?

Determining which workers should be classified as an ‘employee’ and which ones should be classified as an ‘independent contractor’ is not always an easy task. In some cases, the line between the two can be blurred. As such, it is not surprising that some misclassification occurs. According to the Internal Revenue Service, the most important factor that you need to consider is control. The more control an employer exerts over a specific worker, the more likely that worker is to be an employee rather than an independent contractor.

Companies that Misclassify Workers May Be Subject to Penalties

If the IRS conducts an audit and determines that your business misclassified employees as independent contractors, then financial penalties may be applied. The key issue will be whether or not the IRS rules that your company misclassified workers on purpose. A company that knowingly misclassified its workers will be subject to far more severe penalties.

Tax Relief May Be Available to Companies Facing Scrutiny for Employee Misclassification

If your company has been accused of worker misclassification, the best thing that you can do is to take immediate action to rectify the issue. This is a problem that will certainly not go away on its own. You can be sure that the IRS will continue to follow up on the issue. The good news is that there are tax relief options available. While dealing with the IRS can be extremely intimidating, our legal advocates are prepared to help you protect your company’s rights.

Among other options, the IRS has launched a Voluntary Compliance Settlement Program (VCSP). This program allows certain eligible companies to fix misclassification issues without incurring major penalties. Even if your firm is not eligible for the VCSP, there are potential settlement options available as well. The best thing you can do is to work with an experienced Chicago payroll tax attorney who can find the best solution for your business.

Get Help from a Chicago Payroll Tax Lawyer Today

At North Suburban Legal Services LLC, our experienced Illinois payroll tax attorneys are standing by, ready to provide the best legal representation to your business. If you have questions or concerns about employee classification, can help.

To set up your full confidential payroll tax consultation, please do not hesitate to contact us today by calling (312) 909-6089. From our office in the heart of Chicago, we serve companies throughout Illinois, including in Cook County, Will County, Lake County, and DuPage County.

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