Contract Labor
- Independent Contractor vs Employee
- Who Are Independent Contractors?
- Independent Contractors and Backup Withholding
- Form 1099-MISC
- Schedule C and Independent Contractors
- Independent Contractor Agreement
More Tax Topics
- Business Structures
- Start-up Costs
- Depreciation
- Car Expenses
- Home Office Deduction
- Travel Expenses
- Hiring Workers
- Meals and Entertainment
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
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Need Some Deductions for 2011?
Don't overlook these!
Updated for 2011
Who Are Independent Contractors?
Who Are Independent Contractors?
Independent Contractors Include Self-Employed Persons Who:
- Generally promote their services to the public.
- May work on a referral basis.
- Control what, when and how their work is done.
- Note: The person hiring an independent contractor has control over the end result of the work.
- For example, you can request changes be made if you're not satisfied with the end result.
- Note: The person hiring an independent contractor has control over the end result of the work.
- Provide their own equipment and supplies to do their work.
- Generally have several clients/customers.
Examples of Independent contractors:
- Self-employed professionals
- For example, accountants, doctors, and attorneys
- Self-employed tradespersons
- For example, electricians, plumbers, and carpenters, painters.
Not Sure How to Classify a Worker?
If you're not sure what a worker's status should be, you can have the IRS determine the worker's status.
Here's how:
- Complete Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
- Submit Form SS-8 to the IRS to get a determination of the worker's status.
Stiff Penalties!
Intentionally misclassifying workers known to be employees as independent contractors to avoid employment taxes is risky business.
The penalties are harsh. Businesses have even been forced to close due to the magnitude of the penalty assessment resulting from an employment audit by IRS (and/or state) auditors.
Good Faith Misclassification of Workers
IRC 3509 is a relief provision intended to save an innocent employer from financial disaster due to a reclassification assessment.
As long as the IRS concludes that an employer did not intentionally disregarded his/her duty to withhold and pay employment taxes by misclassifying workers as independent contractors, relief is available.
Here a excerpts from an IRS memo on employment taxes dated July 6, 2009:
IRC Section 3509: The tax rates under IRC Section 3509 are required to be used in all reclassification cases unless there has been intentional disregard to treat the worker as an employee. When making a determination regarding the applicability of Section 3509 in any reclassification case, including officer compensation cases, examiners should consider Section 3509(c) first.
...a taxpayer is not entitled to the reduced rates of Section 3509 if the taxpayer intentionally disregarded the employment tax requirements.
Here's the link to the entire memo: MEMORANDUM FOR EMPLOYMENT TAX TERRITORY MANAGERS, GROUP MANAGERS AND SPECIALISTS...
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