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Contractor (Self-Employed) or Employee?
can help you with this process but here is the IRS's detailed
explanation on this issue.
is critical that business owners correctly determine whether
the individuals providing services are employees or
Generally, you must withhold income taxes,
withhold and pay Social Security and Medicare taxes, and pay
unemployment tax on wages paid to an employee. You do not
generally have to withhold or pay any taxes on payments to
Select the Scenario
that Applies to You:
I am an independent contractor or in
business for myself
If you are a business owner or contractor who
provides services to other businesses, then you are generally
considered self-employed. For more information on your tax
obligations if you are self-employed (an independent
contractor), see our
Self-Employed Tax Center.
I hire or contract with individuals to
provide services to my business
If you are a business owner hiring or
contracting with other individuals to provide services, you
must determine whether the individuals providing services are
employees or independent contractors. Follow the rest of this
page to find out more about this topic and what your
Determining Whether the Individuals
Providing Services are Employees or Independent Contractors
Before you can determine how to treat payments
you make for services, you must first know the business
relationship that exists between you and the person performing
the services. The person performing the services may be -
employee (common-law employee)
In determining whether the person providing
service is an employee or an independent contractor, all
information that provides evidence of the degree of control
and independence must be considered.
Common Law Rules
Facts that provide evidence of the degree of
control and independence fall into three categories:
Does the company control or have the right to control what the
worker does and how the worker does his or her job?
Are the business aspects of the worker’s job controlled by the
payer? (these include things like how worker is paid, whether
expenses are reimbursed, who provides tools/supplies, etc.)
of Relationship: Are there written contracts or employee
type benefits (i.e. pension plan, insurance, vacation pay,
etc.)? Will the relationship continue and is the work
performed a key aspect of the business?
Businesses must weigh all these factors when
determining whether a worker is an employee or independent
contractor. Some factors may indicate that the worker is an
employee, while other factors indicate that the worker is an
independent contractor. There is no “magic” or set number of
factors that “makes” the worker an employee or an independent
contractor, and no one factor stands alone in making this
determination. Also, factors which are relevant in one
situation may not be relevant in another.
The keys are to look at the entire
relationship, consider the degree or extent of the right to
direct and control, and finally, to document each of the
factors used in coming up with the determination.
If, after reviewing the three categories of evidence, it is
still unclear whether a worker is an employee or an
Form SS-8, Determination of Worker
Status for Purposes of Federal Employment Taxes and Income Tax
Withholding (PDF) can be filed with the IRS. The form may be
filed by either the business or the worker. The IRS will
review the facts and circumstances and officially determine
the worker’s status.
Be aware that it can take at least six months to get a
determination, but a business that continually hires the same
types of workers to perform particular services may want to
consider filing the
Form SS-8 (PDF).
Employment Tax Obligations
Once a determination is made (whether by the business or by
the IRS), the next step is filing the appropriate forms and
paying the associated taxes.
Forms and associated taxes for independent contractors
Forms and associated taxes for employees
Employment Tax Guidelines
There are specific employment tax guidelines that must be
followed for certain industries.
Employment Tax Guidelines: Classifying Certain Van Operators
in the Moving Industry (PDF)
Employment Tax Procedures: Classification of Workers within
the Limousine Industry (PDF)
Misclassification of Employees
Consequences of Treating an Employee as an Independent
If you classify an employee as an independent contractor and
you have no reasonable basis for doing so, you may be held
liable for employment taxes for that worker (the relief
provisions, discussed below, will not apply). See Internal
Revenue Code section 3509 for more information.
If you have a reasonable basis for not treating a worker as an
employee, you may be relieved from having to pay employment
taxes for that worker. To get this relief, you must file all
required federal information returns on a basis consistent
with your treatment of the worker. You (or your predecessor)
must not have treated any worker holding a substantially
similar position as an employee for any periods beginning
after 1977. See
Publication 1976, Section 530 Employment Tax
Relief Requirements (PDF) for more information.
Misclassified Workers Can File Social Security Tax Form
Workers who believe they have been improperly classified as
independent contractors by an employer can use Form 8919,
Uncollected Social Security and Medicare Tax on Wages to
figure and report the employee’s share of uncollected Social
Security and Medicare taxes due on their compensation. See the
Misclassified Workers to File New Social Security
Tax Form for more information.
Voluntary Classification Settlement Program
Voluntary Classification Settlement Program (VCSP) is a
new optional program that provides taxpayers with an
opportunity to reclassify their workers as employees for
future tax periods for employment tax purposes with partial
relief from federal employment taxes for eligible taxpayers
that agree to prospectively treat their workers (or a class or
group of workers) as employees. To participate in this new
voluntary program, the taxpayer must meet certain eligibility
requirements, apply to participate in the VCSP by filing Form
8952, Application for Voluntary Classification Settlement
Program, and enter into a closing agreement with the IRS.
Remember you can call our offices if you have any
questions about these or any other bookkeeping, accounting, tax,
financial planning or insurance related issues, at
Regards, Kevin Roberts, CPA
President, Roberts CPA Group