Reminder: IRS To Search For Misclassified Contractors Next Month

Random audits are coming for employers over the next three years starting next month; the IRS will be checking for “tax noncompliance” in all sorts of areas like fringe benefits and expense reimbursements, but also in worker classification.

What does this mean for you, a freelancer?

This is kind of a long, legalese-heavy post, so we’ve politely put it after the jump for you.

If a company classifies you as a freelancer instead of an employee, they save money because they’re not paying you benefits; the company also saves on employment taxes that should go to Uncle Sam.

The high-profile case where an axed Gawker employee was able to receive unemployment benefits, proving that she was working in the capacity of an employee even though she had technically signed a contract making her a freelancer, shows that misclassification is definitely rampant in the media world. (Important distinction: Gawker Media has NOT been found to be misclassifying all contractors, just the one.)

However, when misclassification makes headlines, companies—even ones that are totally legit—get nervous. Last November we wrote about a book publisher that dumped all its Massachusetts-based freelancers after a high-profile misclassification case in the construction industry. It’s just less of a headache in the short term to do that, apparently, than it is to deal with IRS paperwork.

If you think you’re being misclassified, you can, in the words of tax consultant June Walker, “decide whether you want to pursue kicking this company in the rear or going along with it because you must keep the work.”

In other news, the Massachusetts Joint Committee on Labor & Workforce Development is holding a hearing on this bill Wednesday, which should help to clear up some of the confusion regarding independent contractors and which may help the Mass-based freelancers get their gigs back.