Independent Contractor Compliance Blog - by Collabrus™

WASHINGTON, DC - The Internal Revenue Service announced that interest rates for the calendar quarter beginning Oct. 1, 2009, will not change.

Which rates?

If you overpay your federal taxes the interest rates due to you by the government are:

• Four percent (4%) if you are an individual
• Three percent (3%) if you are a corporation
• However, the IRS only pays one and one-half percent (1.5%) for the portion of a corporate overpayment exceeding $10,000

If you underpay your taxes the interest rates you must pay the government are:

• Four percent (4%) of the amount underpaid, for individual and corporation
• Six percent (6%) for large corporate underpayments (amounts over $10,000)

For example, if your company is audited and found to have misclassified its workers, you will have underpaid your taxes and are subject to the interest rates above.

SACRAMENTO, CA - California’s current interest rate is 5%, also compounded daily. The size of the assessment or type of business does not affect California’s rate. It will remain 5% through December 31^st, of this year, when it will be adjusted based upon the prime rate at that time. 

Neither state nor federal law allows for interest on tax liabilities to be waived. 

Compounding Interest

Both federal and state law provides for interest owed to the government to be compounded daily from the time the government determines the money should have been paid until it is paid. 

Since worker misclassification audits are conducted by reviewing the past there is a lag period where interest has been silently accumulating without your knowledge. This silent accrual creates a growing debt, of which you were likely unaware, and therefore did not have an opportunity to pay. When the auditor presents your business with a tax assessment, specifically for not proving you properly classified your independent contractors, it will include several years of retroactively compounded interest due. 

How do you avoid double liability due?

Interest significantly raises the stakes of properly classifying your consultants and contractors, giving you another reason why you need to employ an expert, like Collabrus. Such experts ensure you are “doing it right” and help you establish documentation so you can prove proper classification when challenged.