Sen. John Kerry (D-Mass) Dec. 15 introduced the Taxpayer Responsibility Accountability and Consistency Act of 2009 (S. 2882) in the U.S. Senate, which would significantly modify the rules governing when employers are allowed to classify workers as independent contractors.  

S. 2882 would amend the Internal Revenue Code of 1986 to include a provision that would require employers to show a “reasonable basis” for applying the independent contractors status or face employment tax liabilities.  The bill would revise the “safe harbor” provision in Section 530 of the Revenue Act of 1978 by allowing employers to classify workers as independent contractors only if there is written documentation from the Internal Revenue Service to the taxpayer addressing their employment status.  

“Independent contractors are often the perfect solution to a pressing demand for the unique skills often required for specialized, short-term projects,” said Ashley Fingarson, ABC director of legislative affairs.  “ABC opposes this, and any other proposal, that would attempt to impede the flexibility of employers to utilize these legitimate and valuable workers.”  

A similar bill (H.R. 3408) was introduced July 30, 2009 in the House by Rep. Jim McDermott (D-Wash.).  In addition to revising the safe harbor provision, H.R. 3408 would also significantly increase the penalties for employers that misclassify employees as independent contractors, including raising the minimum penalty for each incorrect tax return filed from $50 to $250 and raising the fine for each employer that intentionally disregards the filing requirement from $100 to $500 per tax return.  

H.R. 3408 has been referred to the House Committee on Ways and Means and S. 2882 has been referred to the Senate Committee on Finance.  

For more information, contact Ashley Fingarson at ABC, fingarson@abc.org.