DEFINITION
Misclassifying workers is one of the most common — and most expensive — small-business mistakes. The IRS and Wisconsin DOR both apply multi-factor tests focused on control, financial relationship, and the nature of the work. Getting it wrong triggers back taxes, penalties, and interest.
WHEN IT MATTERS
Before bringing on a new worker. After any change to how an existing worker actually operates.
COMMON QUESTIONS
Can I just pay someone as a 1099 if they prefer it?
No. Classification is determined by the facts of the relationship, not by what either party prefers. The worker's preference doesn't override the IRS tests.
RELATED SERVICES
R · RELATED TERMS
S Corporation
A tax election that lets a corporation or LLC pass income through to its owners' personal tax returns, avoiding double taxation.
Estimated Tax Payments
Quarterly payments business owners and self-employed individuals make toward their annual tax bill.
Section 179 Deduction
A federal tax election that lets businesses immediately expense the cost of qualifying property — equipment, vehicles, software — rather than depreciate it.