A very common corporate scheme to save taxes and avoid having to pay benefits is when companies classify employees as independent contractors and issue a 1099. This is tax fraud clear and simple and has opened up a potential for whistleblowers with specific information about their company misclassifying full time employees as independent contractors to reveal that tax fraud and receive a large reward for doing so. The tax liability must exceed $2 million dollars and the proof available must be substantial and easy to follow. In addition, the matter must be reported in the right way and not revealed to the media or others. Executives, inside accountants or senior managers should also be aware that the government is now investigating these issues and it is better to report the matter than be the subject of a criminal investigation.
HOW TO KNOW THE DIFFERENCE BETWEEN AN EMPLOYEE AND INDEPENDENT CONTRACTOR
If a person is on an employer’s payroll and receives a steady paycheck, the person is likely an employee. If a person supplies their own tools, equipment and material and the worker controls their own hours they are generally considered independent contractors. The employer’s tax liability is determined by the worker’s employment status. With employees, employers must pay state and federal unemployment tax, social security tax and workers compensation tax. When a person is an independent contractor, the hiring company is not required to make any such payments.