TIGTA Report on Worker Classification
| TIGTA Report on Worker Classification |
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TIGTA report says IRS still needs to do more to identify misclassified workers The Treasury Inspector General for Tax Administration (TIGTA) has issued an audit report that evaluates the effectiveness of IRS actions with respect to identifying misclassified workers. The report notes that the “misclassification of employees as independent contractors is a nationwide issue affecting millions of workers that continues to grow and contribute to the tax gap.” Workers are frequently misclassified for a variety of reasons, either intentionally to save costs, or unintentionally because of a lack of knowledge. Some independent contractor misclassifications occur because certain employers are protected from potentially large employment tax assessments by Section 530 of the Revenue Act of 1978. The report notes that the IRS' interest in this issue is not to reclassify workers from independent contractors to employees. Rather, it is to ensure that employers are making the proper determinations and that workers are being treated appropriately. The report states that while the IRS has done a great deal to educate employers about proper classification of workers, much more needs to be done. For example, studies of the impact of misclassification on the tax gap are more than twenty years old. Therefore, it is difficult for the IRS to estimate the size of the problem today, or the overall effectiveness that its actions to date are having. The most recent IRS estimate of the tax gap is $345 billion, with an estimated $1.6 billion resulting from worker misclassification. However, the $1.6 billion figure is based on 1984 data, and is likely to be a great deal higher now. TIGTA recommends that the IRS develop an agency-wide employment tax program to coordinate the decision-making process and efforts among its business divisions. The report also recommends that the IRS Deputy Commissioner for Services and Enforcement (DCSE) conduct a formal compliance study to measure the current impact of worker misclassification on the tax gap. The IRS concurred with the findings in the audit report. DCSE will coordinate an agency-wide employment tax program. The Director of Specialty Programs for the IRS Small Business/Self-Employed Division will coordinate a study in fiscal year 2009 on worker classification and other employment tax issues. The planning for this project has already begun. Read the full report: TIGTA Report on Worker Classification (PDF) |
