Jan 14, 2008

Worker Classification- Are you an employee or an Independent Contractor?

As previously blogged, the IRS considers this a major issue of non-compliance. In fact, they have issued more public guidance on this issue for employers.

The issue is that of control. Who controls the worker?? Is it the worker who controls his hours, what he charges, is at risk for a business loss?? These and other factors are used to determine if the worker is in business for themselves (i.e. and is an "independent contractor" and subject to receive a Form 1099-MISC and pay the entirety of their FICA and Medicare taxes- referred to as Self-employment tax) or an employee (receives a Form W-2 and the employer is required to withhold taxes for FICA/Medicare and income taxes).

If you are misclassified, you will need to file a Form SS-8 with the IRS to challenge the determination and to get the IRS to reclassify you. During the time the IRS considers this determination, you can now file a Form 8919 to pay only the portion of the FICA and Medicare that are attributable to you. Keep in mind, if the determination does not go to treatment as an employee, you will be liable for the entire FICA and Medicare tax.

Even the IRS suggests you get tax counsel on this issue.

2 responses:

Ecuskully02 January 15, 2008 at 12:08 AM  

Great article... Do I need to hire someone to help me fill out that form or is it easy enough for someone to fill out on their own?

Jim,  January 15, 2008 at 7:21 AM  

If understand the 20 common law factors that go into what makes up an employee v. an independent contractor, you can do this form- the form itself follows the control factors outlined by the IRS as the salient items for determination. However, the IRS relies heavily on past precedence (i.e. similar workers in similar industries). If you want to research your job that you have and how the IRS treats it, go to the IRS Training Manual on this issue at http://www.irs.gov/pub/irs-utl/emporind.pdf - also you can follow the link to the IRS TV ("Tax Talk Today") for a video on this subject- follow the links to it at: http://www.irs.gov/newsroom/article/0,,id=175309,00.html
In short, if you research and feel comfortable about this- file the Form SS-8 and go through the process. It will take at least one year- and it will be done out of a little town in northern Vermont- Newport or out of Holtsville (Brookhaven) NY; the chances are, if you provide adequate documentation, you will emerge as an employee.

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