Employee or Contractor? Health Care Law Raises Stakes

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From the New York Times, Conrad De Aenlle writes about the increased scrutiny on the classification of workers as employees or independent contractors as a result of the requirements of the Affordable Care Act (ACA) that employers must provide affordable health insurance to full-time employees.  He writes:

“The I.R.S. is emphasizing the distinction between employees and self-employed independent contractors this year, tax specialists warn. That makes it important for workers and critical for businesses that use their services to make sure to get the classification right. If you flub the answers, it could be costly.

In a sense, this is a semantic exercise: If someone is doing a certain kind of work for a specific amount of pay, the label you put on it might not seem to matter much. But which is which and who is who helps determine the obligations that each party in the relationship has to the other and to the I.R.S.

Contractors, being self-employed, are responsible for paying Social Security and Medicare taxes, and they are entitled to certain tax deductions for business expenses. If you’re an employee, though, you pay only half of these payroll taxes. Employers must cover the other half and now, if they’re big enough, health insurance under the Affordable Care Act.

“We are expecting that there will be greater scrutiny by the I.R.S. of the independent contractor/employee distinction,” said Jeffrey Saviano, Americas director of indirect tax at Ernst & Young. “The stakes are higher for companies and the government because of the implementation of the A.C.A. and the employer mandate taking effect in 2015.”

The law requires businesses with 50 or more full-time employees to provide them with health insurance that meets certain criteria deemed to make it affordable. Ian Shane, a tax lawyer at the New York firm Golenbock Eiseman Assor Bell & Peskoe, suggested that the desire to avoid the expense of providing coverage and the paperwork involved in demonstrating compliance provides an incentive for small businesses to find a way to classify some workers as contractors….”

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