To mitigate the risks associated with worker misclassification, companies are urged to take a proactive stance. Withum’s employee classification tool provides a valuable resource for businesses seeking to self-correct and align with IRS guidelines.
By answering a series of questions through this online platform, companies can gain insights into how the IRS would classify their workers, thereby avoiding costly employment tax disputes with the government.
Misclassifying employees as subcontractors can result in a cascade of penalties, as determined by the IRS.
For intentional misclassification, the consequences escalate, with the IRS holding employers responsible for 100% of FICA and income taxes, along with severe penalties and interest.
Beyond financial penalties, misclassifying workers exposes companies to legal action. High-profile lawsuits against industry giants such as Uber, FedEx, and Citigroup highlight the gravity of this issue. In 2020, FedEx Ground Package Systems settled a lawsuit for $2.4 million, addressing allegations of misclassifying drivers as independent contractors. As a result, the spotlight on misclassification has grown, prompting increased scrutiny from states, government officials, and individual businesses.
Despite efforts to address the issue, the IRS estimates that millions of workers are still misclassified today. State-level studies suggest that 10-20% of employers misclassify at least one worker as an independent contractor. Recognizing the widespread nature of this problem, various initiatives are underway to combat misclassification, involving collaboration between states, government bodies, and businesses.
Take a proactive approach with Withum’s Employee Classification Tool.
On September 28, 2026, the Treasury Department and the IRS issued Revenue Ruling 2026-20 and Notice 2026-62. Together, the guidance targets selected exchange-traded fund (ETF) redemption structures and tax-aware investment strategies that the government believes use nonrecognition, timing or character rules to obtain tax results consistent with the purpose and proper application of those rules….
On September 16, 2026, the federal government filed its appellate brief in the case of Kwong v. United States, a closely watched case that could determine whether taxpayers may rely on COVID-19 disaster relief to revive otherwise time-barred refund claims. In seeking reversal, the government argues that the Court of Federal Claims transformed temporary disaster…
This final article in the series brings together the key elements of the return-to-provision (RTP) process. The first article examined why RTP matters, and the second outlined the core reconciliation process. This final article focuses on establishing a gold-standard RTP process by connecting reconciliation findings to current tax payable, deferred tax balances and future process…
This article is a continuation of our previous article which discusses the importance of the return to provision process. This article digs a little further into the specifics of the return to provision process to outline some key items to be considered. A useful Return-to-Provision (“RTP”) analysis begins with discipline at the starting point. Before…
Filing a Form 8996 by mistake has, until now, followed an entity indefinitely. Proposed regulations issued on September 11, 2026, would let an entity that inadvertently elected to self-certify as a Qualified Opportunity Fund revoke that election, but only where no qualifying investment in the entity was ever made. Outside that single fact pattern, the…