The determination of worker classification can be complex and depends on the facts and circumstances of each case. The determination is based on whether the person for whom the services are performed has the right to control how the worker performs the services. It’s not based merely on how the worker is paid, how often the worker is paid, or whether the work is part-time or full-time.
There are three basic categories of factors that are relevant to determining a worker’s classification:
- Behavioral control (whether there’s a right to direct or control how the worker does the work),
- Financial control (whether there’s a right to direct or control the business part of the work), and
- Relationship of the parties (how the business and worker perceive the relationship).
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If a worker you have classified as an independent contractor believes he or she should be considered an employee, the worker can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. When this form is filed with the IRS, the IRS will contact the business with questions on the degree of control the worker has, based on the criteria listed above. Once the IRS has information from both the taxpayer and the business, a classification determination will be made. If the IRS determines this worker is an employee, you may be required to pay additional employment tax and/or penalties.
Dealing with an IRS audit? Get more information here.
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Related tax terms
1099-MISC, Miscellaneous Income