Appendix B: Analysis Of 1099-Misc Records From Construction Industry As Filed With The Massachusetts Department Of Revenue

Introduction

Independent contracting has long been a central part of the construction industry, however many companies purposely misclassify their employees as “independent contractors” as a means of evading the legal responsibilities as an employer. Regardless of whether a worker is legally or illegally deemed an independent contractor, the hiring firm is responsible for submitting 1099-MISC forms to the Internal Revenue Service for each worker paid $600 or more; unfortunately, federal IRS data was inaccessible for this study. However, some firms also submit their 1099-MISC forms to the Massachusetts Department of Revenue, and state DOR representatives agreed to share aggregate data on an industry-by-industry basis with the authors.

Having access to 1099-MISC records is a breakthrough for scholars interested in studying payroll fraud; to the authors’ knowledge, this is the first known study to have such information. But this comes with a substantial caveat. The Massachusetts DOR does not have an enforcement mechanism to require that employers file 1099-MISC forms with the Commonwealth, and many firms choose to bypass the state agency entirely. While the DOR can access all records via their interface with the IRS, the state agency can only share publicly what it directly collects from employers. As such, the DOR could only share a fraction of all 1099-MISC records from the state’s construction industry as most records are sent exclusively to the IRS and not the Massachusetts Department of Revenue.

While the authors are incredibly grateful for the collaboration offered by DOR officials, the incomplete nature of the 1099-MISC records provided to the authors severely limits its usefulness. In particular, the authors are hesitant to reach any definitive conclusions from the data given that these records account for a fraction of the total; from the authors’ conversations with DOR officials, the totals provided account for considerably less than half of the all 1099-MISC filings with the IRS. Further, it is acknowledged that reporting rates to the DOR are likely to vary strongly across subsector of the construction industry; for example, it is possible that the records provided to us reflect 45% of 1099-MISC files in one sector and just 15% of the same files in another sector. However, since this is the first known study to have access to any 1099-MISC records in the construction industry, the authors found it important to present the data even if they caution against making any definitive conclusions about what the results may reflect.

Table B1. The Number of 1099-MISCs Filed by Construction Employers to the Massachusetts Department of Revenue, 2016-2019 (Number of Payees)

Table B2. Sum of Total Nonemployee Compensation, 1099-MISCs Filed by Construction Employers to the Massachusetts Department of Revenue, 2016-2019 (in $ million)

Table B3. Sum of Total Nonemployee Compensation, 1099-MISCs Filed by Construction Employers to the Massachusetts Department of Revenue, 2016-2019 (in $ million)

Table B4. Data on 1099-MISCs Not Filed by Massachusetts Payees on Income Tax Returns, Construction Industry, Massachusetts Department of Revenue, 2016-2019 (in $ million)