Get Ready to Prove that those Independent Contractors (ICs) really are ICs.
Posted: February 19th, 2008 @ 5:49pm
Source: AIPB's "The General Ledger"- February 2008
Dear AIPB Member:
Get ready to prove that those independent contractors (ICs) really are ICs. The IRS has figured out a much faster, more efficient way to cast its net for employers who misclassify employees to ICs to save on employer FICA, FUTA, and other taxes. Instead of counting on random audits and the occasional complaint, the IRS has created and is publicizing a new form- i.e., an easy, checkbox way for workers who don’t understand the law to file complaints- known as Form 8919, Uncollected Social Security and Medicare Tax on Wages. The form can be used for the 2007 tax year, so have proof for your company’s 2007 workers on hand. Previous Form 4137 will now be used only by tipped employees to report Social Security and Medicare taxes on allocated tips and tips not reported to their employers.
Workers can file a complaint if they meet only one standard of employee status while performing the services from among the following. The worker must have:
· Filed Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and received a determination letter from the IRS stating that the person is an employee; or
· Been designated as an IC under 530 (rules for paying workers as ICs); or
· Received other IRS correspondence stating that the person is an employee; or
· Previously been treated as an employee by the employer, yet is performing services in a similar capacity and under similar direction and control; or
· Indications that coworkers perform similar services under similar direction and control and are employees; or
· Indications that coworkers perform similar services under similar direction and control and filed an SS-8 and received a determination that they are employees; or
· Filed an SS-8 with the IRS and not yet received a reply.
Worker Classification
To know if a worker is an IC, the IRS examines 3 areas: behavioral control, financial control and relationship of the parties.
1. Behavioral control is the right to direct or control performance of specific tasks, such as whether you give training or instruction on how to perform them.
2. Financial control is the right to direct or control financial aspects of the worker’s activities. The business has less financial control when the worker makes a significant investment, incurs unreimbursed expenses and makes services available to other employers in the relevant market. Other factors are method of payment and the opportunity for the worker to made a profit or incur a loss.
3. The relationship of the parties is shown in agreements and actions toward each other. Actions show how they perceive the relationship and represent the relationship to others, whether the worker gets employee benefits, permanency of the relationship, the right of the parties to terminate the relationship, and whether the services performed are part of the business’s regular activities.
