Homeowner Forced To Pay Taxes & Penalties When Repairman Didn’t

This post is in: Business
No Comments

The IRS is challenging Independent Contractor status. What does this mean to you? If you pay anyone through your business, your investments or even personally for work that they do – the IRS wants to put you on the hook for payroll taxes.

Here’s what happened to one of our members. The couple had real estate property that they were remodeling. They hired a lot of independent contractors to do the work on their properties as well as do work on their personal home.

One of the contractors didn’t pay his taxes. In the course of the collection, the IRS agent asked him if he was sure he was an Independent Contractor. That’s because, the auditor explained, if he wasn’t, then the couple he worked for would have to pay about $5,000 of the taxes he owed. That’s the amount that equaled the payroll taxes.

I bet you can guess what his response was. He jumped on it! Of course, he was an employee! It meant less tax for him if he was. And someone else (the IRS) was going to go collect the money on his behalf.

The IRS then sent a letter to the couple along with a bill for the unpaid payroll taxes. They appealed. And lost. Why? Because they didn’t have an Independent Contractor Agreement with the repairman.

Perhaps the scariest part of this story is this particular contractor ONLY worked on their personal residence. The IRS hadn’t even begun (yet) to look at their business and real estate investments.

If you pay ANY non-employee for services, you must have an Independent Contractor Agreement.

If you hired anyone to do work at your business, your investments or even your personal residence, the IRS can come back and claim that worker should have been an employee. That could mean taxes, worker comp claims, injury claims, lawsuits and a whole lot of problems you do not want to have.

Get an Independent Contractor Agreement (ICA) signed today!

We get ICAs signed on every person who works for us. I strongly urge you to do the same. If someone is an employee, you don’t need an ICA. If someone is an employee of another company (say Chihuahua Plumbing, Inc.), then you don’t need an ICA. But if you hire anyone else, I’d get an ICA first. Better to be safe than sorry.

Leave a Comment