Sen. John Kerry of Massachusetts will look at whether financial advisers should continue to be classified as independent contractors.
Mr. Kerry and six other Senate Democrats, including Charles Schumer of New York, introduced S. 2882, the Taxpayer Responsibility, Accountability and Consistency Act of 2009, on Dec. 15. The legislation is similar to a bill introduced July 30 in the House by Rep. Jim McDermott, D-Wash.
Both bills would make it more difficult for employers to classify workers as independent contractors and would require employers to file more information with the
Internal Revenue Service when it claims independent contractor status for workers.
The office of Rep. Jim McDermott has agreed to work with the Financial Services Institute Inc. on language that would allow financial advisers to continue to be independent contractors for tax purposes, FSI General Counsel David Bellaire said.
“We agree with McDermott's office and are working closely with them on this issue,” Whitney Smith, a spokeswoman for Mr. Kerry, wrote in an e-mail.
The issue promises to loom large for FSI next year, Mr. Bellaire said. It is a top issue for labor unions to ensure that many workers are not classified as independent contractors, which allows employers to avoid paying payroll taxes and benefits.
The legislation is not targeted at financial advisers, Mr. Bellaire added. “But it has the potential unintended consequences of requiring independent broker-dealers to go through the time and expense of demonstrating to the IRS that they do in fact have an independent contractor relationship with their financial advisers,” he said.
FSI's approximately 100 independent broker-dealer firms work primarily through some 155,000 independent contractor financial advisers, he said.
Most financial advisers who work as independent contractors prefer to maintain their current tax status. Switching from independent contractor to employee status would require taxes to be withheld from payments the advisers receive from the firms they work with.
The IRS is examining whether companies are complying with IRS rules regarding independent contractor status of workers. An estimated $34.7 billion is estimated to have been lost in unpaid payroll taxes between 1996 and 2004, according to government estimates.
