Discussion of independent contractor misclassification seems to be everywhere nowadays. And while most now acknowledge that threat of reclassification is real and growing, most businesses don’t know how to quantify this risk.
This isn’t surprising. IC reclassification penalties are highly variable and may rise and fall at the discretion of the IRS auditors who levy them. To add to the confusion, the IRS isn’t the only entity with a stake in contractor reclassification: the Department of Labor, state tax authorities, and others can get into the act as well.
And given that each state has its own laws and penalties, a dark cloud of ambiguity surrounds the potential liability.
Quantifying What We Can
While we can’t cut through all the ambiguity, MBO Partners developed a calculator that quantifies what we can: the IRS component of the risk. Our legal team scoured the IRS code and assembled the possible penalties into a single easy-to-use calculator.
How It Works
The calculator asks a few simple questions related to the number of contractors you use, the percentage that may be misclassified, and more. It then produces two results:
Please note: This calculator is for demonstration and estimation purposes only. While the laws it references are real, the IRS uses its discretion in assessing penalties and it may raise or lower its fines based on your circumstances. As a result, the actual penalties you could face if the IRS reclassifies your contractors as employees will likely be somewhere in between these two results.
Access the Calculator
Complete the form below to access the MBO Partners IRS Reclassification Liability Estimator.
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