From Forbes, Robert W. Wood discusses whether some on-demand workers might really be employees instead of independent contractors and what some of the implications of their misclassification might be. He writes:
There is a legal argument, however, that some of these people might actually be employees. That status can import wage and hour laws, tax obligations, pension and nondiscrimination rules, not to mention company liability for accidents. And that means there could be big liabilities for Uber, Sidecar and Lyft. But what about the tax filings?
Employees get paychecks with tax withholding sent to the IRS and state governments, even to Social Security. Self-employed workers get gross pay with no withholding. They take care of their own taxes, but how they do it may not be discussed. And how much it costs is often quiet too.
This is a problem we may not see exploding for quite some time. Tax filings are done in arears, and audits are often even further down the line, years ahead. These workers ostensibly work for themselves and that means they are proprietors.
They don’t get a W-2, so they are supposed to fill out a proprietorship schedule, Schedule C to their Form 1040. That is what you fill out if you operate a small business that is not in a legal entity (such as a corporation, LLC or partnership). You may run it from your garage, smartphone, or on weekends, even though the bulk of your income comes from wages from a regular job.
A sole proprietorship is the simplest way of conducting business.There’s no business entity and only one owner (although husband and wife filing taxes jointly count as one). Despite its simplicity, there is no question that Schedule C is a big audit target. Every year the IRS releases its Statistics of Income Bulletin. It is dry reading, but carries such data as the number of tax returns filed, the number of types of returns selected for audit, and other statistical data.
Read the full story at Are On Demand Workers Independent Contractors In Name Only?.