There are striking differences between a contract worker and an employee. One of the most notable is the fact that an employer is generally not responsible for the tax obligations of the contractor. The contractor, unlike an employee, is expected to pay his or her own taxes to the Internal Revenue Service (IRS).
The distinction can be difficult and has resulted in a number of court cases. A failure to properly label and withhold taxes on a worker’s wages can result in allegations of a failure to collect payroll taxes, potentially leading to criminal tax charges.
One way an employer can safeguard against such allegations is to require workers to sign a 4669.
What is Form 4669? According to the IRS, any employer that does not withhold the correct amount of tax is liable for the required tax amount. Form 4669 essentially provides a statement that the worker acknowledges that these tax obligations are their responsibility and that these taxes were paid by the worker. It provides a method for the employer to remove his or her responsibility for this tax obligation.
What happens if there is not a completed form? A piece in Fox Business delves into a recent case dealing with this issue. The case exposes the fact that the IRS can, and often does, charge taxes on this income twice. If the employer cannot gather signatures on these forms, the IRS could hold the employer responsible for the tax obligation. If the worker had already paid these taxes, the IRS would get paid twice.
This case questioned this process. The employer argued that the agency should have the burden to review their own records to see if the worker had paid these taxes. The government countered that such a requirement would result in a “tremendous administrative burden.” Ultimately, the Tax Court sided with the employer.
What does this mean for independent contractor and employee tax disputes? This case provides an example of the intricate nature of these legal matters. The employer in this instance had hired a seven member team to track down the workers that had not signed off on their 4669s. After two years, the team still could not find all the workers. In an attempt to preserve the employer’s interests, the legal team crafted a case pushing for the burden to check tax records for compliance to fall upon the federal agency.
Crafting such a case is not an easy matter. Employers that find themselves navigating similar legal matters with the IRS can benefit from the experience of an employment tax dispute attorney, like those at Robert J. Fedor Esq., LLC. This legal professional can advocate for your interests and better ensure your tax matter is resolved favorably.