U.S. Code » Title 26 » Subtitle Subtitle C— Employment Taxes › Chapter CHAPTER 25— GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES

26 U.S.C. § 3509

Determination of employer’s liability for certain employment taxes

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(a) In generalIf any employer fails to deduct and withhold any tax under chapter 24 or subchapter A of chapter 21 with respect to any employee by reason of treating such employee as not being an employee for purposes of such chapter or subchapter, the amount of the employer’s liability for—(1) Withholding taxes

Tax under chapter 24 for such year with respect to such employee shall be determined as if the amount required to be deducted and withheld were equal to 1.5 percent of the wages (as defined in section 3401) paid to such employee.

(2) Employee social security tax

Taxes under subchapter A of chapter 21 with respect to such employee shall be determined as if the taxes imposed under such subchapter were 20 percent of the amount imposed under such subchapter without regard to this subparagraph.

(b) Employer’s liability increased where employer disregards reporting requirements(1) In generalIn the case of an employer who fails to meet the applicable requirements of section 6041(a), 6041A, or 6051 with respect to any employee, unless such failure is due to reasonable cause and not willful neglect, subsection (a) shall be applied with respect to such employee—(A) by substituting “3 percent” for “1.5 percent” in paragraph (1); and(B) by substituting “40 percent” for “20 percent” in paragraph (2).(2) Applicable requirements

For purposes of paragraph (1), the term “applicable requirements” means the requirements described in paragraph (1) which would be applicable consistent with the employer’s treatment of the employee as not being an employee for purposes of chapter 24 or subchapter A of chapter 21.

(c) Section not to apply in cases of intentional dis­regard

This section shall not apply to the determination of the employer’s liability for tax under chapter 24 or subchapter A of chapter 21 if such liability is due to the employer’s intentional disregard of the requirement to deduct and withhold such tax.

(d) Special rulesFor purposes of this section—(1) Determination of liabilityIf the amount of any liability for tax is determined under this section—(A) the employee’s liability for tax shall not be affected by the assessment or collection of the tax so determined,(B) the employer shall not be entitled to recover from the employee any tax so determined, and(C) section 3402(d) and section 6521 shall not apply.(2) Section not to apply where employer deducts wage but not social security taxesThis section shall not apply to any employer with respect to any wages if—(A) the employer deducted and withheld any amount of the tax imposed by chapter 24 on such wages, but(B) failed to deduct and withhold the amount of the tax imposed by subchapter A of chapter 21 with respect to such wages.(3) Section not to apply to certain statutory employees

This section shall not apply to any tax under subchapter A of chapter 21 with respect to an individual described in subsection (d)(3) of section 3121 (without regard to whether such individual is described in paragraph (1) or (2) of such subsection).

(Added Pub. L. 97–248, title II, § 270(a), Sept. 3, 1982, 96 Stat. 553; amended Pub. L. 100–647, title II, § 2003(d), Nov. 10, 1988, 102 Stat. 3598; Pub. L. 101–508, title V, § 5130(a)(4), Nov. 5, 1990, 104 Stat. 1388–289; Pub. L. 115–141, div. U, title IV, § 401(a)(218), Mar. 23, 2018, 132 Stat. 1194.)Editorial NotesAmendments

2018—Subsec. (d)(1)(C). Pub. L. 115–141 substituted “section 3402(d)” for “sections 3402(d)”.

1990—Subsec. (d)(3). Pub. L. 101–508 substituted “subsection (d)(3)” for “subsection (d)(4)”.

1988—Subsec. (d)(3). Pub. L. 100–647 substituted “subsection (d)(4)” for “subsection (d)(3)”.

Statutory Notes and Related SubsidiariesEffective Date of 1990 Amendment

Amendment by Pub. L. 101–508 effective as if included in the enactment of Pub. L. 100–647, § 2003(d), see section 5130(b) of Pub. L. 101–508, set out as a note under section 1402 of this title.

Effective Date

Pub. L. 97–248, title II, § 270(c), Sept. 3, 1982, 96 Stat. 554, provided that: “The amendment made by this section [enacting this section] shall take effect on the date of the enactment of this Act [Sept. 3, 1982], except that such amendments shall not apply to any assessment made before January 1, 1983.”

Notes of Decisions
Cited in 8 cases, 1990–2016 · leading case: In Re Rasbury, 130 B.R. 990 (Bankr. N.D. Ala. 1991).
Sort: Relevance Newest Treatment
In Re Rasbury, 130 B.R. 990 (Bankr. N.D. Ala. 1991). · cites it 3× “§§ 3402 (d) and 6521, or under 26 U.S.C. § 3509 (a); and whether penalty should be applied.”
Crowd Mgmt. Servs., Inc. v. United States, 889 F. Supp. 1313 (D. Or. 1995). · cites it 5× “The third issue relates to the applicability of the special relief withholding rates of 26 U.S.C. § 3509 (a). The final issue relates to the validity of the 100% penalty assessed against DeLoretto pursuant to 26 U.”
Consol. Flooring Servs. v. United States, 42 Fed. Cl. 878 (Fed. Cl. 1999). · cites it 4× “Furthermore, plaintiff argues that if the Court finds plaintiff is liable for FICA taxes, plaintiff should be required to pay the only employee’s portion of the tax.”
Cleveland Inst. of Elec., Inc. v. United States, 787 F. Supp. 741 (N.D. Ohio 1992). “CIE has not contested whether the IRS properly computed the amount of taxes, interest, and penalties owed under 26 U.S.C. § 3509 . 2 . The Senate Conference Report did not discuss the meaning of consumer products, either.”
Fred R. Esser, P.C. v. United States, 750 F. Supp. 421 (D. Ariz. 1990). “The amount of taxes due Finally, plaintiff contends that 26 U.S.C. § 3509 (a)(2) limits the amount of FICA taxes due to 20% of the amount otherwise determined when an employer fails to deduct and withhold social security taxes “by reason of treating such employee as not being an…”
Nelly Home Care, Inc. v. United States, 185 F. Supp. 3d 653 (E.D. Pa. 2016). “” 26 U.S.C. § 3509 (a). IRS auditors are relying on this section to increasingly scrutinize any perceived incorrect classifications of workers as independent contractors.”
Smith v. United States (In Re Smith), 243 B.R. 89 (D. Haw. 1999). · cites it 2× “from his professional corporation can be re-characterized as income by the IRS; (5) whether debtor was entitled to the safe haven protection of Section 530 of the Revenue Act of 1978, as amended, to avoid liability for the § 6672 penalty; and (6) whether the debtor is entitled…”
Cucul v. Gurbir-Tanu, LLC, 950 F. Supp. 2d 316 (D. Mass. 2013). “In short, there is simply no legal authority which entitles an employer to recover from an employee tax amounts that the employer neglected to withhold.”
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