One of the biggest changes that occurred after the Tax Cuts and Jobs Act (TCJA) was passed in 2017 was the “contractor 2 year rule.” This new rule has huge implications for businesses that hire contractors to fill positions, as it changes the way many companies classify workers and pay taxes.
So, what exactly is the “contractor 2 year rule”? In essence, it says that any worker who has been classified as a contractor by a company can only work for that company for up to two years before they must be reclassified as an employee. This means that the employer must start paying payroll taxes and providing benefits like health insurance and paid time off.
Why was this rule put into place? The government has long been concerned about misclassification of workers, as it can lead to companies avoiding paying their fair share of taxes and depriving workers of important benefits. The “contractor 2 year rule” is a way to ensure that workers are being correctly classified and that companies are meeting their tax obligations.
Of course, this rule isn`t a one-size-fits-all solution. There are plenty of situations in which a worker might be hired as a contractor for longer than two years without issue. For example, if a company regularly hires contractors for short-term projects that are unlikely to go over two years in duration, they may be able to continue doing so without running afoul of this rule.
However, employers who frequently hire long-term contractors should be aware of the “contractor 2 year rule” and make sure they`re following it to the letter. Otherwise, they could be facing hefty fines and legal issues down the line.
Overall, the “contractor 2 year rule” is just one of the many changes that have come about as a result of the TCJA. If you`re an employer who frequently hires contractors, it`s important to stay up to date on all the latest tax laws and regulations to avoid any compliance issues. By properly classifying your workers and following the “contractor 2 year rule,” you can ensure that your business stays in compliance and your workers get the benefits they`re entitled to.