The Taxman is Watching Independent Contractors

With the economy in the trash can (or I guess recycling bin if we want to be green about it), state and federal tax collectors aren’t able to come up with the kind of cash that legislators are able to spend!  Now, I’ve chaired legislative committees before – I’ve sat in on the “officer” meetings – so you’ll have to trust me when I say that politicians know how to spend lots and lots of other peoples’ money.  Heck, you don’t need to trust me, just pop on over to at a random time & day or read Krugman’s NY Times blog if you want to hear some academic justifications for it.

Anyway, that kind of political spending requires extracting taxes from someone, and with the workforce in terminal decline the independent contractor looks like a nice, lonely, and vulnerable target for a financial shakedown:

This month the IRS also began a three-year audit of 6,000 companies (2,000 per year.) And don’t assume the agency is only interested in big targets — unlike routine employment tax audits that often are triggered by questions about company returns, the 6,000 audits are being chosen by statistical sampling — luck of the draw.

Motivating this move is the assumption that independent contractors are drastically under reporting their earned incomes.  Some analysts expect as much as 30% of all non-regular labor compensation is being kept hidden from the tax accountants, but the government may just be underestimating how little people are managing to survive off of.  Recently, there have even been reports of Americans pretending to be Indian or Philippino web contractors so that the incredibly low wages they wanted wouldn’t be seen as a sign of poor quality work.  Why would an American work for so little..?  Oh yeah, maybe because the alternative is not working at all!

Maybe the IRS didn’t get the memo, because they seem to think that people are still charging 2005-Silicon Valley-style contracting fees around the country.  Nah, I hate to break it to you guys in D.C., but the reality is much more like head-to-head competition with China and India.  And yeah, I know we’re not talking about blue-collar labor or textile weaving, this competition has gone straight to the web and other high tech jobs just as well.

So if you’re getting ready to file your taxes, remember that the government has an extra eye out for people in contingent labor situations.  A lot of web publishers fall under this classification with their advertising programs, or they take on extra contract work from other sources..

Isn’t it great to get mainstream recognition as a growing part of the economy?  Now we get the FTC and the IRS paying special attention to us!


  1. This has been coming around and around for years but this time with Obama and the deficit, I think it will be for real. My arguement is for reform before they begin to have the “Spanish Inquisition”.

    More details in today’s New York Times. For a summary and a link to the article Check it out at:

    Have a great weekend.

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  1. Remember, 1099-Misc is NOT a W2!

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