🏗️ How the New York Fair Play Act Impacts Taxes, 1099s, and Schedule C Filers

Under the New York Construction Industry Fair Play Act, most workers in construction are legally presumed to be:

➡️ Employees (W-2)
❌ NOT Independent Contractors (1099)

Unless they pass the strict 3-part test

This creates major federal and state tax consequences for:

• Contractors
• Subcontractors
• Payroll companies
• Bookkeepers
• Tax preparers

📄 1. 1099 Issuance Risk

Many construction businesses in NY do this:

“He has an LLC, so we pay him on a 1099”

🚨 Under the Fair Play Act, this does NOT matter

Even if the worker:

• Has an LLC
• Has an EIN
• Signed an Independent Contractor Agreement
• Submits invoices
• Is paid by the job

They may still legally be an employee.

Tax Exposure if Misclassified:

If NY determines the worker should have been W-2:

The contractor may be liable for:

• Employer FICA taxes
• FUTA
• NYS Unemployment Insurance
• Workers’ Compensation premiums
• Disability insurance
• Overtime & wage violations

And from a federal standpoint:

• IRS can assess Form 941 back taxes
• Trust Fund Recovery Penalty (TFRP)
• Payroll tax audits

🧾 2. Schedule C Filers in Construction

A lot of NY construction workers file like this:

1099-NEC → Schedule C → Pay Self-Employment Tax

But here’s the issue:

If they fail the Fair Play Act test, they:

• Should NOT have been issued a 1099
• Should NOT be paying SE tax
• Should be treated as employees

This creates:

In many cases:

➡️ The worker is overpaying taxes
➡️ The employer is underpaying payroll taxes

🧠 3. Workers’ Comp Audits = Tax Audits Waiting to Happen

Here’s what many tax pros miss:

NY Workers’ Comp Board and NY DOL often:

• Audit construction companies
• Reclassify “independent contractors”
• Share findings with:
  • NY Department of Taxation
  • IRS

Once reclassified:

• All 1099 payments may be treated as payroll
• Payroll taxes assessed retroactively
• Employer may owe:
  • 3+ years of back taxes
  • Penalties
  • Interest

🧨 4. General Contractor Liability

Even if:

• Your client hires a subcontractor
• That subcontractor pays their own workers

➡️ The General Contractor can still be held liable

Meaning:

If a subcontractor misclassifies workers:

• GC may owe:
  • UI taxes
  • Workers’ Comp
  • Back wages
  • Payroll taxes

📊 5. Audit Red Flags for Tax Preparers

Construction clients in NY who:

• Issue multiple 1099-NECs
• Have labor as largest expense
• Pay “crew leaders”
• Have subs working full-time
• Provide tools/materials
• Control work schedule

May be violating the Fair Play Act

And:

➡️ Filing Schedule C for these workers may support improper classification if audited later

💡 Pro Tip for Tax Firms

Ask construction clients:

• Who controls the schedule?
• Who provides tools?
• Can the worker work for competitors?
• Is this work part of your normal business?

If it’s:

Framing contractor paying framers
Roofing company paying roofers
Painting company paying painters

🚨 It’s VERY likely those workers are employees under NY law.

Need Help?

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