Note that it can take at least six months for a decision to be made, but a company that continually hires the same types of workers to provide certain services should consider filling out the SS-8 PDF form. In general, an employee whose behavior and finances are controlled by the employer is considered an employee. For example, an employee whose duties must be monitored and controlled by the employer is an employee. An employee who receives all of his or her expenses paid by the employer is likely to be considered an employee. One way to avoid such negative consequences is for the employer or employee to file Form SS-8 with the IRS in advance, allowing the IRS to formally establish the correct classification of employees. It can take up to six months for you to receive a response from the IRS after filing Form SS-8. A company that hires multiple people with ambiguous status must file an SS-8 form for each of those employees. Individuals who believe they have been wrongly classified as independent contractors can also apply for self-employment in exchange for a full tax by completing Form 8919 to report an employer. If you already have independent contractors working for you, Salem can protect your business. There are a few things you know right now: the sun will rise, Friday follows Thursday, and if a worker is an employee, he or she may not be an independent contractor (IC). Right? Well, you may want to check your calendar again because at least one of these truths has just been discredited. The IRS assumes that an employee is an employee, unless proven otherwise.
This is largely because the required withholding tax on an employee`s paycheck is the main method used by the IRS to tax personal tax collection. Here`s a look at the verdict and how to keep your business online. An employee who owns their own business is not a requirement, but one of the factors to consider in determining whether someone can be properly classified as an independent contractor. If you trust the IRS criteria overall, you can classify their separate work as an independent contractor job. But rest assured! It is generally believed that among tax professionals, an employee receiving both a W-2 and a 1099 increases the likelihood of an IRS audit. According to IRS guidelines, it is possible to have a W-2 employee who also works as an independent contractor of 1099, provided that the person performs completely different tasks that would qualify as an independent contractor. The Voluntary Classification Settlement Program (CSIP) is an optional program that provides taxpayers with the opportunity to reclassify their employees as employees for future tax periods for labour tax purposes, partially exempting eligible taxpayers who agree to prospectively treat their employees (or a class or group of workers) as employees. To participate in this voluntary program, the taxpayer must meet certain eligibility requirements, apply for the VCSP by completing Form 8952, Voluntary Classification Claim, and enter into a final agreement with the IRS.
If you have current or future IC candidates who are not eligible under all applicable guidelines, Salem has a process to help you. We can convert your CIRCUITS into Professional Service Employees (EPS). Salem Managed Services is a specialized division of Salem Group – a privately held, strategic human resources and cross-functional workforce management firm headquartered in Oakbrook Terrace, Illinois – expert in independent contractor audit and verification. Salem`s IC/1099 status determination and compliance management help you properly classify your CIs to avoid penalties, fines, and tax arrears. Of course, it goes both ways. Just because you have someone to do contract work for you doesn`t mean that person can`t invade employees` territory if they work for your company in another capacity. (And you know the IRS likes to find people who really should be employees!) NOTE: At the same time that this section has been rewritten, the DOL has proposed rules that, according to Secretary of Labor Eugene Scalia, “will bring clarity and consistency to the determination of who is an independent contractor under the Fair Labor Standards Act.” strategic HR Inc. will provide updates once the new regulation is completed. If you classify an employee as an independent contractor and do not have a reasonable basis to do so, you may be liable for tax on that employee`s payroll (the relief provisions described below do not apply). For more information, see Section 3509 of the Internal Revenue Code. Only an independent contractor can legally receive Form 1099.
An employee must meet certain standards to be classified as an independent contractor. To find out if someone is an employee or an independent contractor, the IRS looks at the type of work, the type of control the company has over the employee, and the relationship between the employee and the employer. There are three main measures known as common law rules that the IRS uses to determine whether a person is an employee or an independent contractor: behavior, finances, and type of relationship. Behavioural indicators express the degree of independence of the individual concerned. Financial aspects include the portion of the business aspects of the work that are financially controlled by the contractor or employer. Finally, the nature of the relationship indicates the duration of the relationship and whether there are contracts or benefits. The other situation is when the employee held these two jobs at different times in the same taxation year for the same employer. Sometimes an employer issues a bonus on Form 1099 in addition to a W-2 for wages.
If this happens, try cancelling the 1099 and adding the bonus to a corrected W2 instead. Employee benefits also do not have to be reported on a 1099. In this case, the IRS received a request to see if it was possible for someone to work for a company in these two capacities: an employee paid by payroll and an independent contractor paid through accounts payable. There are two situations where an independent contractor can obtain Forms 1099 and W2 from the same employer. The first is when the employee performed duties as an employee and an independent contractor at the same time for the same employer. Basically, this means that the worker had one job as an employee and another as an entrepreneur for the same company. It is important – no, essential – that any employer considering using COI in their organization remember that the Supreme Court has stated that there is no definition that solves all the problems related to the employer-employee relationship under the Fair Labour Standards Act (FSL). Instead, each regulator (federal or state) uses its own analysis to determine the underlying economic reality of the situation and whether the individual is economically dependent on the employer.
If you`d like to learn more about the IRS Independent Contractor Classification Test, you can check out our 2-minute HR training on the subject or read the Independent Contractor Classification Guide at the HR Support Center. .