Tax Lawyer's Blog

WebCPA reports that the Treasury Inspector General for Tax Administration says that weaknesses in the IRS’s employment tax compliance program could cost the U.S. Treasury more than$130 million in Social Security and Medicare taxes over the next five years: 

The report… said the IRS should do more to protect against the improper use of employment tax forms to avoid paying Social Security and Medicare taxes. The problem stems from employers who misclassify workers as independent contractors instead of employees.

“The misclassification of employees as independent contractors is a nationwide problem affecting millions of employees,” said TIGTA Inspector General J. Russell George in a statement. “Left unchecked, it will continue to grow and contribute to the tax gap.”

Mr. George then makes the following suggestion:

[The IRS should] do more to ensure that the burden of uncollected taxes is not shifted to compliant taxpayers.

Come again, Mr. George?

The law already shifts the burden of uncollected taxes to compliant taxpayers by forcing employers to collect and remit their employees‘ taxes.¹ The only reason we have the withholding at source laws is because the government fears that if the employer doesn’t act as its collection agent before workers get their wages, it may never get paid.

So, Mr. George has it backwards: The reason employers prefer to treat their workers as independent contractors rather than employees isn’t because they’re trying to shift the burden of uncollected taxes to compliant taxpayers, but rather, because they are trying to cast off the burden that has been shifted to them.

Footnotes:

¹  The withholding rules force employers to be collection agents for the government without pay.

Related Posts:

• Employers, Independent Contractors and the Home Worker Category
• Tax Court Update – November 2008 – Independent Contractor v. Employee
• You May be an Employee and Don’t Know it: Independent Contractor Rules

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