If the IRS suspects that an employer has intentionally misclassified employees as independent contractors in order to avoid their employer responsibilities and taxes, businesses could incur criminal penalties of up to $1,000 per employee, plus potential prison time of as much as 5 years. This is on top of $50 for each non-filed Form W-2, 1.5% of the wages of each misclassified employee, 40% of the FICA taxes that weren’t withheld from the employee, and 100% of the employer contributions. These penalties will include any interest that would have accrued on those payments.