IRS Gets Tougher on Classifying Independent Contractor vs Employee

If you treat workers as independent contractors who are really employees and fail to withhold payroll taxes the IRS can reclassify them and assess potentially crippling retroactive penalties.  For many, a key way out of this mess is Section 530, a tax relief provision that can let you keep even an erroneous classification.  Under this provision, a business can treat an individual as an independent contractor if:It never treats the person as an employee;It does not treat any other person with a substantially similar position as an employee;All required federal tax returns and Forms 1099 show the worker as an independent contractor; and The business had a “reasonable basis” not to treat the person as an employee.
It never treats the person as an employee;
It does not treat any other person with a substantially similar position as an employee;
All required federal tax returns and Forms 1099 show the worker as an independent contractor; and The business had a “reasonable basis” not to treat the person as an employee.