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

Summary

When an employer wrongly treats a worker as not being an employee and so fails to withhold income tax and Social Security taxes, the employer's bill is set by fixed rates instead of the full amount. The employer owes income tax withholding equal to 1.5 percent of the worker's wages, plus 20 percent of the employee's share of Social Security taxes. Those rates double to 3 percent and 40 percent if the employer also failed to file the required information returns, unless there was reasonable cause. The employer cannot recover these amounts from the worker, and the worker's own taxes are not affected. These reduced rates are off the table if the employer intentionally disregarded the withholding rules, or if it withheld income tax on the wages but skipped the Social Security tax.