§3509 Determination of Employer’s Liability for Certain Employment Taxes

Summary

If an employer treats a worker as not an employee and so fails to withhold required taxes, the law says the employer is treated as owing a set amount. For income tax withholding, the employer is treated as if 1.5% of the worker’s wages should have been withheld. For the worker’s Social Security (employee) tax, the employer is treated as owing an amount equal to 20% of what that tax would otherwise be. If the employer also failed to file the required reporting (under sections 6041(a), 6041A, or 6051) and the failure was not from reasonable cause, those rates double to 3% and 40%. If the failure was an intentional disregard of the withholding rules, these special rules do not apply. When liability is set this way, the worker’s own tax does not change and the employer cannot collect those amounts from the worker. Two other tax rules (sections 3402(d) and 6521) do not apply here. These rules also do not apply if the employer did withhold income tax but failed to withhold Social Security tax, or for certain statutory employees described in section 3121(d)(3).