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One of the worst things that can happen to any business is an audit, but an IRS Audit is probably the most feared audit of all. Basically, the IRS can audit you for a variety of reasons, but recent information indicates that the IRS is gearing up for extensive “Worker Misclassification Audits.” Workers classified as 1099 independent contractors (IC) instead of W-2 employees have cost the federal government over $4.7 billion in income taxes alone.

At this point, you’re probably thinking, “It won’t happen to me,” but in the back of your mind you’re also wondering what triggers an IRS audit. Well, there isn’t just one thing that can trigger an audit of your employee and payroll files. It could be a number of things.

Some common audit triggers for worker classification are as follows:

  1. The 1099 IC files a claim for unemployment benefits. (They are not eligible for unemployment.)
  2. The 1099 IC files a claim for workers’ compensation. (They should carry their own because they are not eligible through an employer.)
  3. A worker receives a W-2 and a 1099 Form from the same employer in one year because they converted from a 1099 IC to a direct hire of the company. (If they are performing the same task as a 1099 IC and W-2 employee, they are normally classified as a W-2 employee.)
  4. The worker feels they are being improperly treated as a 1099 IC and files a complaint with the Department of Labor’s Wage and Hour Division.
  5. The worker feels they are being improperly treated as a 1099 IC and files a Form SS-8 with the IRS for their own classification determination, or files a Form 8919, Uncollected Social Security Tax and Medicare Tax on Wages, with their personal income tax return.
  6. The IRS is anonymously alerted about the worker.

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