Sen. John Kerry (D-MA) and Rep. Jim McDermott (D-WA-07) reintroduced “the Fair Playing Field Act” (S. 2145 and H.R. 4123 – S. 3786 and H.R. 6128 in the last Congress). The Act would repeal Section 530 of the Revenue Act of 1978 (“Section 530”), which protects the tax status of independent contractor relationships. The Obama Administration has tried to do the same thing in its proposed budgets the last several years, as well as its deficit reduction proposal last year.
Repeal of Section 530
- Section 530 would be repealed for services performed on or after the date which is one year after the date of enactment.
- A taxpayer’s Section 530 protection would be grandfathered during a transition period, and apply with respect to a worker, on a retrospective basis only, until the earlier of: The first day of the first calendar quarter beginning more than 180 days after an IRS audit determination (commenced at least one year after the date of the bill’s enactment) that a class of individuals holding positions “substantially similar” to the position held by the worker at issue are employees; or the later of the effective date, or the first day of the first calendar quarter beginning more than 180 days after the issuance, of a final regulation or other guidance of general applicability which sets forth factors for determining the status of individuals holding positions “substantially similar” to the position held by the worker at issue. The IRS guidance would not be effective any earlier than one year after the date of the bill’s enactment
- Treasury / IRS would be authorized to issue guidance interpreting the common-law test.
Narrowed Application of Code Section 3509
- The statutorily reduced federal employment-tax liabilities associated with worker misclassification contained in Code section 3509 would no longer apply with respect to workers whose status is addressed in Treasury regulations or guidance of general applicability, unless the taxpayer can otherwise establish a reasonable basis for classifying the workers as independent contractors (which, no doubt, would be very difficult to establish).
- If a taxpayer receives a final written determination from IRS that a worker, or another worker who hold a substantially similar position, is an employee, the taxpayer would be treated as lacking a reasonable basis for treating the worker as an independent contractor for purposes of Code section 3509 as of the first day of the first calendar quarter beginning more than 180 days after the issuance of the determination, unless the taxpayer establishes reasonable basis by clear and convincing evidence.
New Independent-Contractor Disclosure Document
- Each person that contracts with independent contractors "on a regular and ongoing basis within the scope of the person’s trade or business" would be required to provide each such independent contractor with a written statement (to be developed by the Treasury Department) describing (i) the federal tax obligations of independent contractors, (ii) the labor and employment-law protections that do not apply to independent contractors, and (iii) an individual’s right to obtain a Form SS-8 determination from IRS.
New Annual Reports on Worker Classification
- Beginning with the first fiscal year beginning after the date of the first regulation or guidance of general applicability, the bill would require reports – presumably from IRS – that provide detailed information on IRS’s enforcement activities on worker classification.
- MRA opposes the Fair Playing Field Act.
- Congress must respect and protect independent contractor relationships by maintining Section 530.
- Independent contractors – the quintessential small business people – play an important role in survey and opinion research, whether as field ethnographers, focus group moderators, or general research consultants. More fundamentally, any research participant receiving an incentive could be considered an independent contractor.
- Section 530 provides both parties to an independent contractor relationship with absolute certainty that such status will be respected by the Internal Revenue Service (IRS). As long as the income paid an individual is reported on Forms 1099-MISC, the federal government shouldn’t care whether an individual performs services as an employee or independent contractor. The FICA/SECA tax treatment of each is now substantially the same and their respective tax-compliance rates are more or less the same.
- The certainty that Section 530 provides enables companies and self-employed service providers to enter into business relationships that they know will be respected for federal employment-tax purposes. A certain and predictable regulatory environment for independent contractors inures to the benefit of independent contractors, the companies that purchase their services and our nation’s economy.
The Fair Playing Field Act relates closely to the Employee Misclassification Prevention Act (H.R. 3178) and the Payroll Fraud Prevention Act (S. 770), legislation similarly opposed by MRA (see our 1-pager on those Acts).