The new tax season is now in full swing, and I’ve just finished filing my first wave of new whistleblower lawsuits against employers that misclassified my clients – ordinary employees – as “independent contractors.” The lawsuits allege that their employers purposefully did this to avoid contributing payroll taxes on their behalf. One of the main reasons employers mislabel employees as independent contractors is to avoid paying payroll taxes. This tactics forces the employees to more than they should. In other words, they wind up paying both their share AND the employer’s share of FICA payroll taxes. The lawsuits allege violations of a federal tax-fraud statute, a Florida deceptive-practices law, and a legal theory known as conversion, and seeks in excess of $75,000.00 in damages.
If you’re an employee who’s been misclassified like this, you may be able to pursue a claim for substantial money damages. It doesn’t matter if you no longer work for the employer who did it. And the law allows you to pursue claims going back as far as six years.
Employers Purposely Misclassify Employees For their Own Financial Gain
As an employee, you are responsible for your own income taxes. But your FICA taxes – Social Security and Medicare – are split between you and your employer. The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. The employer’s contribution on your behalf each year of these two taxes usually adds up to thousands of dollars per year. The law requires employers to withhold taxes from your checks, to add their FICA share on your behalf, and send the funds to the IRS. Regular tax deductions from your check make it easier to meet your tax obligations.
In contrast, “independent contractors” pay one hundred percent of their own taxes. And employers don’t pay any portion of their FICA taxes.
Some employers purposely mislabel employees as “independent contractors” so they can just pocket the money that should have gone toward their employees’ FICA taxes. Instead of deducting and contributing to the employees’ taxes, the employer sends these mislabeled workers an IRS Form 1099-MISC at the end of the year. This forces affected employees pay up to a full year’s worth of taxes all at once, including what should have been the employer’s FICA share. Few people can do that, and most wind up in a very bad situation.
Have You Been Misclassified? Here’s How to Tell, and What to Do
Have you been mislabeled an independent contractor? It’s easy to figure out. Did you fill out a job application? Did your employer train you for the specific work you’d be doing? Do you report to your employer’s work location? Does the employer set your work schedule? Do you report to a boss? Does the company provide you with the things you need to do your job – a computer, a desk, supplies, or machines, work tools or gear? You’re an employee. Here’s the form the IRS uses to figure this out.
Mislabeled employees can bring a claim for damages against employers who do this. These kinds of claims allow employees to ask for damages and penalties far in excess of the amount of taxes wrongfully withheld.
Now that’s justice.