Posted On February 27, 2013

Possible reprieve from IRS penalties against Nevada businesses

Nevada businesses may want to be careful when classifying their workers. The IRS will perform tax audits to determine whether companies are following the set guidelines. A simple mistake could result in steep tax penalties. Fortunately, the IRS is now offering a reprieve from those penalties with a new program set up to allow companies the opportunity to reclassify their workers.

Some businesses will attempt to claim that their workers are independent contractors in an effort to escape payroll taxes. At other times, it can be confusing when trying to decide how to classify them. The IRS believes that any worker who offers an identical service as one’s own business needs to be classified as an employee. However, a person who performs a service such as designing a website for a pet store would most likely be appropriately considered a contractor.

Some examples are not that clear-cut, though. If someone owns a spa and hires an on-call masseuse, it could seem an easy decision to classify that person as a contractor. However, the day spa offers the same services that the masseuse offers, so technically the person would be more properly noted as an employee. Even if someone agrees to pay their own taxes and be classified as a contractor, it is likely that the IRS will discover this and penalize the company for not following guidelines.

If a Nevada business is undergoing a tax audit, and the auditor shows concern about the classification of employees, it might be a good time to enter the Voluntary Classification Settlement Program. This allows employers to pay reduced penalties for an apparent misclassification, and the IRS agrees it will not perform any audits for the past years. In addition, no interest or penalties will be required. While this certainly seems like a positive step, it may still be a good idea to gain additional assistance, especially if there is a possibility that the audit could result in additional fines.

Source: Fox Business, “Misclassify a Worker on Your Taxes? IRS Offers Help,” Bonnie Lee, Feb. 8, 2013