Independent Contractor Federal and State Tax Issues: CA AB5, Dynamex, IRS 20-Factor Tests, Safe Harbors and Audits

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, January 14, 2021

Recorded event now available

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Program Materials

This webinar will explain federal and state criteria for determining workers' classification as either employees or independent contractors. Our panel of tax experts will discuss California AB5, the Dynamex decision, and the ABC test used by most states, as well as the IRS's 20-factor test for determining worker status.

Description

At least 28 states have adopted some form, or portions, of the so-called ABC test--a three-pronged test for determining whether a worker is an independent contractor. The most notable, and perhaps burdensome, is California's Assembly Bill 5 (AB5), commonly referred to as the "gig worker bill," which includes per-check penalties of up to $25,000 for missclassified workers.

More disturbing than AB5 is the 2018 decision by the state's supreme court in Dynamex Op'ns West Inc. v. Superior Ct. The ruling requires companies to use the three-prong test, assumes all workers are employees unless the company can prove otherwise, and is effective retroactively.

Unlike most states, the IRS uses a 20-factor test, outlined in Revenue Ruling 87-41, to determine whether a worker is an independent contractor. The factors do not offer a bright-line test. Instead, employers must weigh all the factors and decide how to classify workers. The IRS Publication 1976, Do You Qualify for Relief Under Section 530? outlines three requirements a business can meet to qualify for safe-harbor relief from these subjective guidelines and payroll tax exposure.

In keeping with the gig economy's growth, in January 2020, the IRS launched the Gig Economy Tax Center. Simultaneously, the IRS and states continue to question and audit worker classifications. Businesses and their advisers need to understand the latest developments in worker classifications made by states and the federal government to pay workers properly and avoid substantial penalties.

Listen as our panel of veterans explains best practices for businesses struggling with worker classification and the safe harbors available to stand up to challenges and avoid payroll tax and penalty exposure.

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Outline

  1. Federal worker classification
    1. Criteria
    2. 1099-NEC
    3. Federal safe-harbor relief
    4. Voluntary classification program
    5. Impending national developments
  2. State worker classification
    1. The ABC (three-prong) test
    2. California AB5
    3. Dynamex Op'ns West v. Superior Ct.
    4. Other state criteria
  3. Handling audits
  4. Adviser penalties
  5. Best practices

Benefits

The panel will review these and other critical issues:

  • Key considerations for California employers of gig workers
  • The 20-factor IRS determination of independent contractor status
  • Adviser penalties assessed in states for giving classification advice
  • The impact of Dynamex on worker classification in California
  • Safe-harbor criteria for federal relief from employee classification

Faculty

Howard, Ernest
Ernest F. Howard, CPA

Sole Proprietor

Mr. Howard has been in practice since 1978, offering a full range of accounting, tax, and business consulting services,...  |  Read More

Kampe, Kurt
Kurt W. Kampe, III
Attorney
-

Mr. Kampe has been practicing labor and employment law in California since 1980. He counsels and defends organizations...  |  Read More

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