Tax form 1099 requires to be accounted with an exact classification of workers, employees, and independent contractor services and their resultant payments as made by the employer and accordingly taxes need to be worked out before submission of tax payments to IRS. The misclassification is that when an employee or worker is considered as an independent contractor by the employer and as shown on tax documents. By this misclassification clause as used by the employer may seem to benefit him avoiding the tax payments on certain expenses such as Social security, Medicare, and employers’ or workers ‘compensation insurance. This may also add to that the misclassified employees and workers can lose the health coverage benefits.
Therefore IRS wants an exact classification of employees and workers by the employer and but when treated them under misclassification as independent contractors, the employer should authenticate the misclassification or otherwise IRS would consider that the employer uses his willful act of misclassification of workers and employees as independent contractors for simply to avoid certain taxes and expenses.
IRS Guidelines for Employers to Follow While Filing 1099 Taxes
1) The nature of the relationship between employer and employees/worker, whether it is continuous or needed essentially towards the performance of the company!
2) Whether is involving the employee benefits such as health insurance or leave travel assistance!
Whether an employer has any business control over the working aspects of the employee and does the employee is being reimbursed by the employer for the business expenditures?
4) To what extent that employer has control over his worker/employee’s performance and also to ascertain what exactly does the worker or employee do?
These are essential because the business houses use independent contractors for various service needs and if it is consistent need to be classified accordingly and if is an employee should be listed on the payroll of the company. Now in the wake of the happenings and findings of IRS of the fraudulent and willful acts in some case of employers who show employees and workers as independent contractors in misclassification to avoid the taxes and expenses are all penalized and are liable to pay the unpaid taxes.
Therefore when organizations complete tax documents, they must file different 1099 forms for employees and contractors. Form W-2, Wage, and Tax statement are for employees, and Form 1099-MISC, Miscellaneous Income is for independent contractors.
Voluntary Classification Settlement Program (VCSP) an IRS agent can guide eligible employers that wish to reclassify their workers for future tax years will be welcoming news. Now employers can make exact classification of their employees, workers and independent contractors for smooth e-filing of tax form 1099 through Etax1099.com to be IRS tax compliant.