October 12, 2020
If you intend to hire independent contractors, use caution
Like other Texas business owners, you will need to decide which way to go when it comes to the individuals who work for you. If you think hiring independent contractors would work best for your company, you may want to do some research before committing to it. The IRS may question your decision and if the agency believes you misclassified your workers, the results could be costly.
The IRS may initiate an employment tax audit to determine whether you have correctly classified your workers. The agency uses a 20-factor test to determine how much control you have over the people who work for you. If you control how the work is done, your employees may be misclassified.
Fortunately, your independent contractors do not have to meet all 20 of the criteria. Unfortunately, you cannot point to one factor in particular that will conclusively defend your classification. Each case is reviewed independently, and the IRS will evaluate your situation and apply the factors from there in order to reach its conclusion.
Even though the IRS treats each business as a unique situation, there are some commonalities that you could review in order to make sure that you do have independent contractors working for you instead of employees. However, this is most likely an oversimplification of the inquiry you will need to make. It may work better for your company is you discuss your situation with an experienced Texas tax attorney who help you make sure that you do not end up making a costly mistake.