Worker Classification: Employment Taxes Issues

The misclassification of employees as independent contractors is seen as an increasing problem by the IRS and Congress. Although the issue of worker misclassification is not new and has been a growing problem for many years, the current economic downturn has heightened the significance of the issue.

Employers may classify workers as independent contractors to avoid federal employment tax obligations, which include withholding federal income tax on an employee’s wages, paying unemployment taxes (FUTA taxes), and paying the employer’s share of Social Security and Medicare taxes under the Federal Insurance Contribution Act (FICA). Misclassifying an employee as an independent contractor also enables the employer to exclude the worker from health and retirement benefits.

The IRS and other federal agencies have estimated that the nonpayment and underpayment of employment taxes have contributed approximately $54 billion to the tax gap (the difference between taxpayers’ actual tax liability and taxes reported and paid).

Topics covered in this CCH Learning Center course, Worker Classification: Employment Taxes Issues, include the NRP employment tax project; new tax law incentives for hiring employees; employees; independent contractors; determining worker status, control; Section 530 safe harbor; and proposed reforms of worker classification rules.

Upon completion of this course, the user will be able to:

• Identify traditional, common-law factors used to differentiate employees from independent contractors;
• Discuss current IRS activities and initiatives aimed at addressing employment tax compliance and worker classification issues;
• Understand the employment tax obligations of employers regarding employees and independent contractors;
• Describe the tax consequences to employers of misclassifying employees as independent contractors; and
• Discuss key features of pending legislation addressing worker misclassification.

Field of Study: Taxes
Prerequisites: None
Level: Overview
CTEC course number: 1075-CE-9716
Course was last updated on: 9/17/2010

Credit Available / Units
CPE 2.00 CPE
QAS 2.00 CPE
CTEC Federal 2.00 CE

Note: Recommended CPE credit is based on a 50-minute hour. Participants earning credits for states that require self-study to be based on a 100-minute hour will receive half the recommended CPE credits for successful completion of this course.

Since Continuing Professional Education requirements vary from state to state and are subject to change without notice, please contact your state board of accountancy for information on your CPE requirements and the applicability of this course to meet those specifications.

CCH has been approved by the California Tax Education Council to offer courses that provide federal and state credit towards the annual "continuing education" requirement imposed by the State of California. A listing of additional requirements to register as a tax preparer may be obtained by contacting CTEC at P.O. Box 2890, Sacramento, CA, 95812-2890, toll-free by phone at (877) 850-2832, or on the Internet at www.ctec.org.