When the State Unemployment Department* audits you, auditors are looking mostly for misclassification, specifically employee and contractor misclassification.
Auditors want unemployment taxes. The Federal Government (who funds them) prefers to have taxes withheld at the source – meaning by the business owner.
When taxes are withheld at the source, the proper reporting of that income is much higher than if it is not withheld at the source.
If it is the Internal Revenue Service (IRS) in a tax audit, it is to ensure that the income was actually paid out. And, not a scam to hide income from reporting. On rare occasions, there may be an “Employment Tax Audit” by the IRS but they are very rare.
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*Each state has its own name for this department.
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