Question

ABCco filed Forms 1099-MISC for workers that should have been classified as EEs. What penalties will be assessed to for improper worker classification?

A. 40% of FICA and 3.0% of FIT
B. 20% of FICA and 1.5% of FIT
C. 100% of FICA and 100% of FIT
D. 97% abatement

Answer 1

ABCco's penalties for misclassifying workers as independent contractors instead of employees may include paying 100% of FICA taxes (both the employer's and the employee's share) and other fines and interest, although the options provided do not match standard IRS penalties.

Step-by-step explanation:

When ABCco filed Forms 1099-MISC for workers that should have been classified as employees (EEs), it risked penalties for improper worker classification. However, the specific question asked about penalties assessed does not match IRS guidelines exactly.

Employers are typically required to pay 6.2% for Social Security and 1.45% for Medicare, which are the same rates withheld from an employee's paycheck for FICA taxes. If an employer does not withhold these taxes because workers were incorrectly classified as independent contractors, the IRS may hold the employer responsible for the employees' share of these taxes, plus the employer's share, and additional penalties and interest.