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Debunking 2 tax myths that could lead to audit exposure

On Behalf of | Mar 16, 2016 | Tax Controversies

At the height of tax filing season, we wanted to address two common tax myths. Making either of these mistakes could result in an Internal Revenue Service audit and significant back tax bills.

These issues cover Affordable Care Act (ACA), 1099 filing requirements. In this blog post, we will explain how these myths got started and explain the reality. If audited on either of these issues, seek the counsel of an experienced tax attorney.

50 of more full-time employees

The first one is a requirement of the ACA. This was hotly debated at the time the legislation was passed. Many argued that employers would limit their hiring, so that they did not go over the 50 employees that triggered requirements including the filing of file Form 1095.

It is debatable whether that has happened or not. However, the law states full-time equivalent employees. It is not only whether you employee 50 full-time employees.

This means that many companies ignore non-full-time staff. Calculate monthly full-time equivalency by combining the hours worked by all part-time employees. Then divide by 120 to come up with the full-time employee equivalents.

If you have 45 full-time employees and 12 or 14 part-time staff members, your business may need to file 1095s to comply with the ACA.

Choice of independent contractor status

The myth is that the freedom to act makes a worker an independent contractor. This is an oversimplification.

Whether a worker is an independent contractor depends on several factors, including:

  • Control over when and how work is completed
  • How expenses are reimbursed
  • Whether there is a written contract or employee-type benefits like insurance or vacation pay

There is room for error in the classification process, so consult a tax attorney to ensure correct classification. Proactive action can limit liabilities down the road.

Source: Accounting Today, “Top 10 Form W-2, 1099 and 1095 Myths vs. Realities


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