More Contractors Should Be Classified as Employees, Says IRS Watchdog

The better to milk them

U.S. businesses are avoiding millions of dollars a year in federal tax payments by improperly listing employees as independent contractors, despite an Internal Revenue Service program designed to resolve the uncertainty, the agency's watchdog said in a report on Monday.

Businesses do not pay employment taxes for independent contractors, such as consultants and freelancers, who are hired for temporary jobs.

Workers wrongly labeled as independent contractors add to the $385 billion "tax gap" of taxes owed to the U.S. Treasury but not paid, said the Treasury Inspector General for Tax Administration (TIGTA) in its report.