Federal taxation requirements for employers are a serious matter. As explained by the U.S. Internal Revenue Service website, employment tax evasion may result not just in civil sanctions, but also criminal charges. Due to the seriousness of these consequences, Nevada employers should take care to follow all federal tax regulations.
According to the U.S. Tax Court, employers must pay employment taxes for any workers who classify as employees. These taxes include payments for Social Security, which is required by the Federal Insurance Contributions Act. In addition, employers must also pay unemployment taxes under the Federal Unemployment Tax Act.
Employers do not need to pay FICA or FUTA taxes for independent contractors. As such, the distinction between employees and independent contractors is important.
If a business is audited by the IRS under suspicion of misclassifying employees, the case may be tried by the U.S. Tax Court. This court will consider seven factors to determine whether a worker is an employee. The first is how much control the employer/principal has over the work’s details. The second is which party purchases the worker’s tools and facilities. The third is whether the worker had an opportunity to make a profit or incur a loss. The fourth is whether the worker could be discharged by the principal. The fifth is whether the work could be considered to be in line with the principal’s regular business. The sixth is the temporariness of the relationship between the worker and principal. The seventh is the parties’ perception of their relationship.
It should be noted that no one factor is entirely determinative. The Tax Court will take all factors into account when deciding whether a worker is an employee or an independent contractor.