What is one consequence of the IRS classifying a worker as an employee instead of an independent contractor?

The IRS classification of a worker as an employee rather than an independent contractor has significant implications for the employer regarding payroll taxes. When a worker is classified as an employee, the employer has the responsibility to withhold payroll taxes from the employee's wages. This includes Social Security, Medicare, and federal income taxes. The employer is also required to match certain payroll taxes, which further contributes to the total tax liability associated with having an employee.

In contrast, independent contractors are considered self-employed and are responsible for paying their own taxes, including self-employment taxes, without the employer withholding any amounts from their payments. Therefore, classifying a worker as an employee provides the employer the ability to withhold payroll taxes, effectively increasing tax compliance and ensuring contributions to social insurance programs.

Overall, this classification affects not only tax responsibilities but also labor laws, worker benefits, and reporting requirements, thus playing a crucial role in how a business manages its financial and legal obligations.