Worker classification is whether a worker is an employee, paid on a W-2 with payroll taxes withheld, or an independent contractor, paid on a 1099-NEC and responsible for their own taxes; the IRS decides based on control over the work, not the label the parties use.
Misclassification exposes the business to back payroll taxes, penalties, and the trust fund recovery penalty. Section 530 relief and the Voluntary Classification Settlement Program can limit the damage.
Why it matters: a 1099 contractor who works like an employee is a payroll tax liability waiting for an audit. See trust fund recovery penalty.
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