Updated July 21, 2015
Day Care Nursery Independent Contractor
Independent contractors in the daycare and nursery school industry
One of the newer types of audits that we have been handling is the federal payroll tax only audit.
This is something that we had never seen before. Normally when the Internal Revenue Service comes in, they look at all of the types of tax that they collect, both income and payroll tax.
We have a south side nursery school client that we had begun working for in the middle of a particular tax year. The first thing we noticed was that the teachers at the facilities were being treated as a day care nursery independent contractor rather than employees. We switched everyone over, in the middle of the tax year to an employee status. The applicable payroll taxes were withheld and remitted to the various taxation agencies. We completed and filed the income tax returns for the year.
Three years later we received an audit notice on this client which was for payroll taxes only. When I sat down with the auditor I was told that he was part of a unit at the Internal Revenue Service where payroll tax auditing was the only thing that they handled. We were successful in limiting the time period of the audit. They only looked at the one year rather than going back the three that remained in the statute. We were also successful in making sure that this didn’t open up into an income tax audit as well. Once the auditor looked at our income tax work, they didn’t want to waste their time.
Do not try to face this on your own.
Additional Accounting Articles and information on my firm can be found at
Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.