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Can I hire employees as independent contractors to save money on taxes in Illinois? What are the requirements?

Based on the information provided in the context documents, it is important to note that Illinois has specific laws and regulations regarding the classification of employees as independent contractors.

Requirements for Hiring Independent Contractors in Illinois

Illinois uses the “ABC” test to determine whether a worker is an employee or an independent contractor. To be classified as an independent contractor, the worker must meet all three of the following criteria:

  1. A - The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. B - The worker performs work that is outside the usual course of the hiring entity’s business.
  3. C - The worker is engaged in an independently established trade, occupation, or business of the same nature as the work performed.

If the worker does not meet all three criteria, they must be classified as an employee and are entitled to all the protections and benefits afforded to employees under Illinois law.

Consequences of Misclassifying Employees

Misclassifying employees as independent contractors can result in significant legal and financial consequences for employers. Employers who misclassify employees may be liable for unpaid wages, taxes, and benefits, as well as fines and penalties.

Tax Credits for Hiring New Employees

Illinois offers tax credits for employers who hire new employees. To be eligible for the tax credit, the employer must file an application with the Department of Revenue after the conclusion of the 12-month period (or 6-month period for certain circumstances) after the new employee has been hired [1.2].

Conclusion

In summary, it is important to carefully consider the classification of workers as independent contractors in Illinois and ensure that they meet all three criteria of the “ABC” test. Misclassifying employees can result in significant legal and financial consequences for employers. Additionally, employers may be eligible for tax credits for hiring new employees in Illinois.

Source(s):
Jurisdiction

Illinois