Worker classification, that is if workers are employees or independent contractors, is a critical determination for a variety of reasons.  If a worker is determined to be an employee, the employer is required to report earnings, carry certain insurance, and pay various Federal and California employment taxes.  Conversely, if a worker is determined to be an independent contractor, there are generally no employment taxes and limited reporting requirements.  As a result the correct treatment of a worker is an issue that is frequently audited by the IRS and California EDD.

Why am I being Audited for Worker Classification Issues?

The audit of a worker’s status could arise for any number of reasons; however, there are a few that are more common than others:

1. Obstructed Unemployment Claims2. Underground Economy Investigations3. S-Corporation Owner/Officer

How Does the IRS and EDD Decide a Worker’s Classification?

The test for determining whether a worker is an independent contractor or employee depends on which agency is investigating the employer.

EDD Worker Classification Determinations
IRS Worker Classification Determinations

What Should I do if I Have Questions about Employee vs. Independent Contractor Worker Classification Issues?

If you have questions about the classification of a worker as an independent contractor or as an employee, or are being audited for that issue by the IRS or FTB, McLaughlin Legal can help.

McLaughlin Legal is a boutique San Diego tax firm, with a special emphasis in defending taxpayers in civil and criminal tax disputes.  Our tax attorneys represent individuals and businesses in all types of audits, appeals, and Tax Court litigation matters, and have routinely handled worker classification audits.  

Interested in Learning More? Interested in Learning More?
If you are interested in learning more about worker classification issues, please feel free to contact us today for a free consultation.