Someone brings on a crew member and files a 1099 instead of a W-2 “to keep things simple.”

Here’s the deal:That “simple” move can become a six-figure mistake when the IRS or state agency (EDD, FTB, DIR or DLSE – gotta love California) gets involved.

If your “1099” is:🔹 Working full-time under your direction🔹 Using your tools and equipment🔹 On your schedule🔹 Paid hourly instead of by project

…then they’re probably an employee, not a contractor — and you could be on the hook for back payroll taxes, income tax withholdings, penalties, and interest.

This is one of the top audit triggers in construction, and regulators are tightening enforcement every year.

For decades, the IRS offered Section 530 as a “safe harbor,” protecting businesses that qualify from IRS reclassification penalties, even if workers should technically be employees.

But new IRS guidance makes this relief harder to claim, and relief arguments are getting systematically denied.

Protect your business — use written subcontractor agreements, verify insurance, and keep proof that your subs operate independently.