Tax Administration

Improving Independent Contractor Compliance with Tax Laws Gao ID: T-GGD-94-194 August 4, 1994

This testimony focuses on the tax compliance issues arising from health care reform proposals. Some reform provisions affect the rules for classifying workers as employees or independent contractors and for reporting payments made to independent contractors on information returns. Also, some employers would be required to pay most health insurance premiums for their workers. GAO makes three main points. First, independent contractors tend to have lower tax compliance than employees. Second, an employer mandate could induce employers to use more independent contractors, some of which will be misclassified because of unclear classification rules. Third, to the extent that health care reform can address these issues through better information reporting and other measures, the better for tax administration.

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