Audit Alert from State of NJ, Department of Labor and Workforce Development
My IT client received an Audit from State of NJ, Department of Labor and Workforce Development. The auditor reviewed all the Wage information and 1099-Misc information.
It appears that the State of NJ is very strict with its definition of independent contractors rules. They require all independent contractors to have an actual business address, business card, business listing and perhaps a website to substantiate the independent status! The fact that my IT client had consultants working for him at various client sites whilst meeting some of the independent contractor rules made no difference to the State.
Apparently, an independent contractor may claim unemployment at the conclusion of the temporary engagement and this has resulted in NJ State paying out unemployment claims. Thus, the NJ State is going after Companies that have unincorporated independent contractors and charging the Corporations with the possible delinquent disability and unemployment tax liabilities.
Thus, per my audit experience, it appears that my client will not employ any further incorporated individuals as independent contractors, and they are ready to pay the tax liabilities due as a result of all unincorporated contractors employed in NJ! Further, NJ State has demanded to review prior year's tax returns to determine whether there are possible further tax liabilities.
A word of caution to all Tax Professionals, beware of this new audit targeting NJ Corporations employing individual contractors that are engaged substantially with 1 employer. The State of NJ considers this fact to conclude that the consultant is really an employee of the corporation, where substantially all the revenue is derived from one source!