Administration proposes significant changes to worker misclassification relief provisions

Washington National Tax Services

President Obama's fiscal year 2012 budget reintroduces a proposal designed to end the broad relief provided under current law to employers that fail to properly treat their workers as employees. When Congress passed Section 530 of the Revenue Act of 1978, the concern was that small businesses -- acting in good faith -- failed to properly classify workers as employees could be forced out of business by an IRS examination resulting in an employment tax assessment and assertion of penalties. Since 1978, numerous companies, large and small, have relied on the protections of Section 530.

The Administration now indicates that it is seeking to reduce uncertainty regarding classification, eliminate the potential competitive advantage for some businesses if qualifying for Section 530 protection, reduce noncompliance, and maintain the benefits and worker protections associated with employee status. The Administration's 2012 budget would provide broader authority for the IRS and the Department of Labor to administer programs that pursue appropriate reclassification of workers from independent contractor to employee status.

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