The APA Government Relations Task Force Federal Issues Subcommittee asked the IRS to better coordinate definitions of employee and independent contractor with the U.S. Department of Labor (DOL).
The APA request comes after the IRS’s Small Business/Self-Employed Specialty Employment Tax (SB/SE) signed a Memorandum of Understanding (MOU) for Employment Tax Referrals with the DOL’s Wage and Hour Division (WHD) to share information regarding misclassification on December 14, 2022.
Conflicting Definitions
The APA said it is concerned with the conflicting definitions of employee and independent contractor between a set of proposed DOL rules and the common law definition used by the IRS. While aspects of the proposed DOL regulations overlap with the IRS, the definitions are not the same and can leave employers in a gray area.
The MOU creates a process for referrals from the DOL to the IRS on misclassification. It also shows that the agencies intend to streamline the process for investigating and penalizing employers that allegedly misclassify their employees as independent contractors. Lastly, this MOU shows the IRS’s intent to target employers that lack a good faith reason for worker misclassification and are more likely to receive substantial fines.
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Adam Prinzo is the Assistant Manager of Government Relations at APA