NJ WARNS EMPLOYERS & ACCOUNTANTS WHO ISSUE FORM 1099-MISC TO EMPLOYEES
NJ says employers are misinformed if they believe that by simply reporting a worker’s earnings to the federal government using Form 1099, as opposed to Form W-2, that the worker becomes as an independent contractor.
NJ SOLICITS HELP OF ACCOUNTANTS ABOUT EMPLOYERS WHO MISCLASSIFY INDEPENDENT CONTRACTORS
The New Jersey Department of Labor recently released a message to NJ’s licensed accountants regarding misclassifying employees as independent contractors. NJ is solicitating the assistance of the state’s accountants to educate their business owners as to who is an employee and who is an independent contractor. The misclassification of workers is not a new issue to our firm. We have previously discussed the rules in our August 19, 2011, October 15, 2012, September 10, 2013 and February 15, 2015 posts.
JOINT AUDIT EFFORTS OF U.S. DEPT. OF LABOR (DOL), IRS & STATE DOL
What is important about this NJ announcement is that the state realizes it is losing tax revenues (uncollected unemployment compensation and disability benefits tax funds) and will focus its audit exams on small business owners misclassifying their employees. Now, in addition to the IRS and U.S. Department of Labor audits looking for employer misclassifications of its workers, NJ employers will see NJ auditors in their rear view mirrors.
WILL PA EMPLOYERS BE NEXT?
States are copycats. If NJ is “seeing the light” and collecting additional tax revenues, soon other states will be doing the same.
STATE TAX REVENUES ARE AT RISK
NJ says it has seen a number of cases where small and medium sized employers believe that by simply making the decision to report a worker’s earnings to the federal government using Form 1099, as opposed to Form W-2, a potential employer may unilaterally deem that individual to be an independent contractor, thereby avoiding the responsibility under N.J.S.A. 43:21-7 to make contributions respecting that individual to the unemployment compensation and State disability benefits funds.
EMPLOYERS NEED TO UNDERSTAND AN AUDITOR’S APPROACH
If a service is performed for remuneration or under any contract of hire, written or oral, express or implied, it is considered to be covered W-2 employment, unless the potential employer is able to establish the following with regard to the service at issue and the individual providing that service:
(A) Such individual has been and will continue to be free from control or
direction over the performance of such service, both under his contract of
service and in fact; and
(B) Such service is either outside the usual course of the business for which
such service is performed, or that such service is performed outside of all
the places of business of the enterprise for which such service is performed;
(C) Such individual is customarily engaged in an independently established
trade, occupation, profession or business.
Accordingly, where an employer fails to meet any one of the three criteria listed above with regard to an individual who has performed a service for remuneration, that individual is considered to be an employee and the service performed is considered to be employment subject to all payroll withholding taxes.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.