Employment Taxes: Return Information of Misclassified Employees Is Discoverable in a Worker Classification Case

Employee MisclassificationEmployers are required to deduct federal income tax from employees’ paychecks. I.R.C. § 3402(a)(1). While the employer will be liable if it fails to withhold, I.R.C. § 3403, in cases where the employees were improperly classified as independent contractors, the prospect exists that they have independently paid their income taxes directly after receiving a 1099. As a consequence, the Internal Revenue Code provides a partial defense to the employer: The employer will not be liable for income taxes to the extent that the improperly classified employees paid them, but will remain liable for any interest and penalties associated with its failure to deduct the taxes from the employees’ wages.… Read More

Worker Classification: Homecare Provider Demonstrated Reasonable Basis for Classification of Companions as Independent Contractors

home healthCases challenging the classification of workers as independent contractors have been a significant enforcement priority for both the IRS and the Department of Labor. On May 10th, the United States District Court for the Eastern District of Pennsylvania granted summary judgment to a business seeking a refund of employment taxes it paid after the IRS challenged the classification of its workers as independent contractors. Nelly Home Care, Inc. v. United States, Nos. 15-439 & 15-444, 2016 U.S. Dist. LEXIS 61524 (E.D. Pa. May 10, 2016). The case is of particular interest because the taxpayer did not qualify for one of the statutory safe harbors under Section 530 of the Revenue Act of 1978 but nonetheless prevailed by demonstrating “other reasonable basis” to support the classification decision.… Read More