After the recession hit in 2008, many businesses were forced for find ways to cut costs and make work more efficient to combat the loss of profits. Employees, in the same way, also looked for ways to increase their revenue. As a result, the number of freelance workers greatly increased. For businesses, the health benefits and paid time off are often not required for independent contractors, and wage protections also aren’t required. Now that the economy is recovering, some employees are sticking to this trend – relying on freelance workers instead of full-time employees – to save on funds. But some businesses are going too far, walking on the edge between full-time and freelance employees.
Fortunately for contractors, the IRS is noticing. As tax lawyer Robert Wood explains in a Forbes article, “some employers push the envelope to treat workers as ‘independent contractors’ who are clearly employees if anyone would bother to look. That’s where the IRS and many other agencies come in. They can ferret out the truth according to various legal standards that often boil down to how much control the company has over the worker.”
As a result, for businesses that hire freelance workers and full-time employees and have sent out 1099 tax forms, keeping track of funds is especially important this year when dealing with taxes for contractors. In case of an audit, proving that there is a strong difference between freelance and full-time may be needed, and 1099 processing services can help. If forced to pay penalties for hiring a “freelance” employee, the funds saved by hiring a contractor may not be worth it.
Tab Service Company is a leading provider of 1099 processing services. As an SOC2-approved service organization, we apply industry-best practices to our approach with clients.