Currently, I work at a practice as an 1099-contractor and have been for a few years. I've been made aware that the practice wants to participate in the IRS VCSP to change worker status to employee. I've been given an SS-8 form and am curious if this will trigger an audit of my prior years tax returns should the ruling come in favor of being classified as an employee. A lot of information has been posted about benefits to the "employer" but not much has been said about potential pitfalls to workers who filed their returns as 1099 contractors. Any advice would be helpful.

Zip Code: 08823

I think if you file the SS-8, there is more of a chance the the organization that pays you will be audited. The IRS would prefer that everyone were paid as an employee, since they have a better chance of getting all the taxes from employees than from independent contractors for a few reasons.

For starters, while employees have federal income taxes withheld from their pay, contractors do not. Plus, contractors can claim expenses directly against their income. Employees must claim those expenses as a Miscellaneous Itemized Deduction, which are only deudctible to the extent they exceed 2% of your income, and then get you no benefit if you are hit by the Alternative Minimum Tax.

The IRS has determined that the Tax Gap in 2006 was almost $400 billion. 75% of this tax gap is from Small Business Owners and Self-Employed Individuals. You can read about the Tax Gap at: http://www.irs.gov/newsroom/article/0,,id=252094,00.html.

Zip Code: 01801