Chess Pieces on a Chessboard

Employment Taxes

The Internal Revenue Code requires every employer to withhold Social Security taxes, Medicare taxes, and income taxes from the wages of its employees. These taxes, along with the additional contribution of Social Security tax made by the employer, comprise “employment taxes.” If your business has employees, whether part-time or full-time, the law requires your business to pay these employment taxes, and this tax obligation can serve as the Achilles’ heel of many businesses, especially small businesses. At the Ben-Cohen Law Firm, our tax specialists can draw on the knowledge not only of a CPA, but also a Los Angeles employment tax attorney, certified by the State Bar of California Board of Legal Specialization as a Taxation Law Specialist, to help you understand your employment tax obligations.

We can defend you against an employment tax audit by the Internal Revenue Service (IRS), or the California Employment Development Department (EDD). We can also analyze your payroll, and ensure that your protocols for collecting employment taxes are sufficient to prevent you from encountering a major problem in the future.

How workers are classified: employee vs. independent contractor

Because the withholding requirement applies only to an employer’s employees, payroll tax problems typically arise when the IRS or EDD conclude that an employer has improperly treated employees as independent contractors. Both the IRS and the EDD use a complicated 20-factor test in evaluating whether a worker is an employee or an independent contractor. Our employment tax attorneys can guide Los Angeles clients and others through this test.

Employers often prefer to classify workers as independent contractors because of the absence of employment tax withholding requirements. However, employers should tread carefully, because if your business categorizes a worker as an independent contractor, and declines to withhold taxes, the IRS may review that decision and, if the agency reclassifies the worker as an employee, it can impose potentially massive retroactive penalties.

Methods of relief from a re-classified worker tax obligation

If the IRS reclassifies a worker as an employee, the employer may still avoid related tax assessments and penalties if it qualifies for relief under Section 530 of the Revenue Act of 1978. The taxpayer qualifies for Section 530 relief if it satisfies three tests: the “Reasonable Basis Test,” the “Position Test” and the “Tax Return Test.” An employment tax lawyer at our Los Angeles firm can explain each of these tests. An employer must have a “reasonable basis” for treating the worker as an independent contractor, must have treated workers in substantially similar positions consistently with how it treated the worker at issue, and must have filed its tax returns in a manner consistent with its classification of the worker as an independent contractor. Because Congress intended to protect taxpayers who made good-faith errors in classifying workers as independent contractors, courts will broadly construe the “reasonable basis” requirement in favor of taxpayers.

An additional avenue for relief exists through Section 3509. This relief offers an opportunity for a reduction in employment tax assessments if the employer issued a Form 1099 for the worker. The reduced rates are 1.5 percent of wages as withholding and 20 percent of the employee’s share of Social Security to be paid by the employer. To obtain this relief, an employer must satisfy certain reporting requirements with respect to the reclassified employee, or show that it had reasonable cause for its failure to file the proper returns.

Misclassifying a worker as an independent contractor instead of an employee can trigger substantial, and harmful, financial consequences to your business, but it need not be so. The tax law contains a variety of options for reducing, or eliminating, the cost of a misclassification. Our Los Angeles employment tax lawyers have the knowledge and the resources to assist you with properly classifying your workers and dealing with the IRS or EDD if you have received a demand for back-owed employment taxes on a re-classified worker. For your questions about employment taxes, contact the tax attorneys at the Ben-Cohen Law Firm.

Client Reviews
I approached Mr. Ben-Cohen regarding a pending case with the State of California and my small business. During a time that was quite stressful, I found Mr. Ben-Cohen to be the perfect person to represent me and my company. He communicated with me in clear terms so that I understood everything that was taking place in a timely manner. He treated my situation with the type of candor you only find in a consummate professional and successfully negotiated a deal with the State of California that far exceeded my expectations. I found him to be kind, efficient, sensitive and nothing short of brilliant. I consider myself fortunate to have met him and highly recommend his services. I will not hesitate to use his firm in the future should a need arise. Google, We Care Spa
I am an international tax advisor and have worked with Pedram on more than a dozen difficult and challenging cases. Pedram's clients and fellow advisors highly respect him because he has an uncanny ability to quickly identify and work diligently to resolve his clients' issues. Pedram is pragmatic in his approach. He is transparent with his clients and dedicated to getting to a fair and reasonable outcome. I have attended an IRS Appeals conference with Pedram and would want no other attorney on my side. Pedram is extremely passionate in his work and representing his clients. He is also enjoyable to work with and develops very good relationships with his clients and fellow advisors. I highly recommend Pedram for any tax controversy work. Avvo, Curt
Top Drawer Tax Fraud Lawyer. Pedram got me out a CI jam I thought I would not resolve. He is also fair and reasonable with his billing. I interviewed 4 top Tax Fraud Lawyers in LA and went with Pedram...Glad I did! Google, Michael Jeppson
Pedram Ben-Cohen at Ben-Cohen Law Firm, PLC is one of the most incredible, creative, and caring attorneys I have ever dealt with. He gave us hope but also gave us the reality and worst case scenario. He fought for us tooth and nail. The attention and time Pedram put into the case was like no other. He charged us more than fair and was very reasonable in every aspect. He is not the kind of attorney that charges for every minute. I liked him very much not only as an attorney but as a person because he is very honest, is true to his integrity, and is dedicated to his clients. He loves what he does and has the passion to protect and defend his clients, which totally shows in his work and our outcome. We originally hired another attorney from a famous firm who basically did not give us much hope on our case . That is when we came to Pedram who won our case in a short amount of time and got us the outcome we were looking for. Because of Pedram and his creativeness, willingness, and dedication, he got us our favorable outcome. He is our go to attorney for sure, without a doubt. Avvo, Anonymous
A few years ago I had a major tax problem and I was looking for the right professional tax lawyer. I interviewed at least five experts and all of them were very professional. I am very picky. When I met Mr. Pedram Ben-Cohen, it took me no more than five minutes to decide that he was the one, and I was absolutely right with my intuition. He is very professional, knowledgeable, smart, and knows his job perfectly. In addition to all of his professional skills, as a person he is very friendly, pleasant, ready to help, and took care of me like I was his own family. I referred and recommended him to friends and family with tax problems and will continue to do so warmly to anyone. I know that he is able and will do his job the best way for his clients. He is my personal tax lawyer and expert and will remain so. Google, Shlomo Kattan
Contact Us
Contact form