Articles Posted in Employment Law

Deficits are high, and taxes need to be higher to pay the high costs of government. But raising taxes is politically difficult. So, where can the IRS look to increase revenues? The “tax gap”.

The Tax Gap Misclassification Solution

On February 4, 2009, “TIGTA” (Treasury Inspector General for Tax Administration) issued a report and recommendation noting, among other things, that the IRS has not done a comprehensive study of work misclassification since 1984. In that year, the IRS had estimated that misclassified employees accounted for understatement of FICA, federal withholding, and unemployment taxes of approximately $1.6 billion. According to the TIGTA report, that underpayment is now estimated to be around $2.72 billion. This is one of the reasons that the TIGTA report recommended that the IRS should conduct a study (meaning audits):

Recommendation 2: The Deputy commissioner for Services and Enforcement should consider conducting a formal National Research Program reporting compliance study for employment taxes that includes measuring the impact of worker misclassification on the tax gap.

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Effective July 1, 2011, Indiana’s much disputed Senate Bill 590 became law. This bill has been hotly contested since its inception for its harsh response to illegal immigrants in Indiana and those who employ them. Certain provisions are still being litigated in court. Although the bill has been watered down from its most extreme provisions, it still contains many changes to Indiana’s existing law. The hallmark of this Bill is the E-Verify Program, a program electronically verifying the work authorization status of newly hired employees. As of July 1, 2011, all state agencies, political subdivisions, businesses seeking more than a $1000 grant from a state agency or political subdivision, and all contractors and subcontractors entering into or renewing a public contract are required to enroll in and participate in this program for all new hires. Some businesses falling within the purview of participation in E-Verify also have to sign an affidavit stating they do not knowingly employ an unauthorized alien. Many also have to provide documentation of their participation in E-Verify. If businesses with public contracts do not comply with this new program and requirements, that contract will be terminated after thirty days, or as soon as is feasible, if this violation is not remedied. The business will then be liable for actual damages. The government may also file a civil action for reimbursement of unemployment insurance benefits paid to an employer that knowingly employed an unauthorized alien.
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