IRS to target businesses that fail to file payroll taxes

Small business owners have through the end of the day on Monday, January 31, to file Form 1099s for independent contractors. Those who do not, or improperly classify contractors and do not pay payroll taxes, will be subject to audits, according to a release from the Internal Revenue Service.

While classifying employees seems like a comparatively minor task for business owners, workers who are not documented and taxed appropriately can lead to significant financial inconsistencies. The IRS has stated that it will closely monitor company records for correct filings.

"It can be tempting for an employer to save money by classifying employees as independent contractors," Michael Rozbruch, founder and chief executive officer of Tax Resolution Services, said in a statement. "It is also tempting, in this tough economy, for workers to agree to be classified as independent contractors and take the financial hit just to have a job. And then, some business owners may just be unclear on the law."

According to the IRS, business owners are on the hook for various taxes, including Social Security, Medicare, income and unemployment. Unlike salaried employees, independent contractors are solely responsible for taxes from income earned while on the job. 

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