1. Businesses should be careful when classifying workers as independent contractors for federal tax purposes to avoid potential reclassification by the IRS.
2. If a worker is classified as an employee, the business is responsible for withholding federal income and payroll taxes, as well as paying the employer’s share of FICA and FUTA taxes, and potentially providing fringe benefits.
3. There is no uniform definition of an employee, but the right to control and direct the worker in their job is a key factor in determining classification.
4. Some employers may qualify for relief from employment tax liabilities under Section 530 if they have misclassified workers as independent contractors and meet certain requirements.
5. Section 530 does not apply to certain types of workers. – You can ask the IRS to rule on whether a worker is an independent contractor or employee using Form SS-8.
– The IRS tends to classify workers as employees rather than independent contractors.
– Filing Form SS-8 may alert the IRS to potential worker classification issues and could lead to an employment tax audit.
– It may be better to properly set up a relationship with workers as independent contractors to comply with tax rules.
– Workers can also file Form SS-8 to get an official determination of their status, especially if they want to eliminate self-employment tax liabilities.
– If a worker files Form SS-8, the IRS will notify the business and ask for a classification decision.
– Businesses should consult with tax experts before filing Form SS-8 to ensure proper worker classification.
If You’re Hiring Independent Contractors, Make Sure They’re Properly Handled
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