Offer In Compromise
Protect yourself from
IRS intimidation, errors,
and any tax penalties.

Offer in Compromise
Specific OIC Topics

About Offers In Compromise

Trust Fund Penalties

Related Tax Topics
For Taxpayers and
Tax Consultants

Appeals of IRS Collection and Examination Actions

Employee-Independent Contractor Issues

Employee-Misconduct Issues

Federal Courts

Freedom of Information Act

Innocent Spouse Relief

IRS Collection

IRS Installment Agreements

IRS Interest Abatement

IRS Seizure & Enforcement

IRS Statute of Limitations

IRS Tax Audits

IRS Tax Code Information

IRS Tax Fraud

IRS Tax Levies

IRS Tax Liens

IRS Tax Penalties

Tax Court

Tax Legislation

Tax Liens - Suing the IRS

Taxpayer Advocate and Problem Resolution

Taxpayer Privacy

Taxpayer Refunds

Taxpayer Rights

Why Protesters Lose

Write Your Congressman

Employee-Independent Contractor Issues

The issue of whether a person is an employee or an independent contractor has significant tax consequences. Worker classification affects how you pay your Federal income tax, social security and Medicare taxes, and how you file your tax return. The classification also affects your eligibility for employer and social security benefits. Those who should be classified as employees, but aren't, may lose out on social security benefits, workers' compensation, and unemployment benefits. The issue is highly factual and also involves legal issues. Consequently, strong advocacy of an IRS tax attorney is critical. How do you determine if a person is an employee or an independent contractor? Section 3121(d)(2) of the Code defines the term "employee" to include: "any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee." Section 31.3121(d)-1©(2) of the regulations states that under the usual common law rules, the legal relationship of an employer and employee generally exist:   when the person for whom services are performs has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee under the usual common law rules. Section 31.3121(d)-1©(3) of the regulations states that whether the relationship of employer and employee exists under the usual common law rules will in doubtful cases be determined upon an examination of the particular facts of each case. Generally, a worker is either an independent contractor or an employee. Certain workers are considered employees by statute for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or for Federal income tax withholding from wages. Where there is no controlling statute, a worker's status is determined by applying the common law test, which applies for purposes of FICA, FUTA, Federal income tax withholding, and the Railroad Retirement Tax Act. A worker's status under the common law test will be determined by applying relevant facts that fall into three main categories: behavioral control, financial control, and the type of relationship itself. In each case, it is very important to consider all the facts - no single fact provides the answer. Behaviour Control: These facts show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done -- as long as the employer has the right to direct and control the work. For example: Instructions -- if you receive extensive instructions on how work is to be done, this suggests that you may be an employee. Instructions can cover a wide range of topics, for example: how, when, or where to do the work, what tools or equipment to use, what assistants to hire to help with the work, and where to purchase supplies and services. If you receive less extensive instructions about what should be done, but not how it should be done, you may be an independent contractor. For instance, instructions about time and place may be less important than directions on how the work is performed. Training -- if the business provides you with training about required procedures and methods, this suggests that the business wants the work done in a certain way, and you may be an employee. Financial Control: These facts show whether there is a right to direct or control the business part of the work. For example: Significant Investment -- if you have a significant investment in your work, you may be an independent contractor. While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be an independent contractor. Expenses -- if you are not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your unreimbursed business expenses are high. Opportunity for Profit or Loss -- if you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor. Relationship of Parties: These are facts that illustrate how the business and the worker perceive their relationship. For example: Employee Benefits -- if you receive benefits, this is an indication that you are an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor. Written Contracts -- a written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts. References Employment Tax Enforcement Program - Employment Tax Requirements. Form SS-8 - Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Training Material 3320-102 (10/96) - Independent Contractor or Employee? (PDF) Publication 15-A - Employer's Supplemental Tax Guide. Publication 505 - Tax Withholding and Estimated Tax. Publication 533 - Self-Employment Tax. Publication 1779 - Employee Independent Contractor Brochure. (PDF) Tax Topic 762 - Independent Contractor vs. Employee.

For Immediate IRS Tax Help
Offer in Compromise Associates
Free Conference Call
888.712.7690

Email: info@irstaxattorney.com

Special Tax Topics
|| Home || IRS Leverage || Overpaying || Consulting ||
|| Services Offered || Representation || Legal Issues ||
|| Factual Issues || Penalties and Interest || Lobbying ||

Brought to you by Alvin S. Brown, Esq., attorney at law, former Supervisory Manager and Tax Attorney-Advisor, Internal Revenue Service, Office of Chief Counsel, Internal Revenue Service.

Site Enhancements by Be. Site Designs and Top Gun