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    This document discusses the differences between independent contractors and employees for tax purposes. It provides guidance on how to determine your proper classification based on behavioral control, financial control, and the relationship between you and the business. Behavioral control looks at how much instruction you receive, financial control considers investment and expense reimbursement, and relationship examines benefits and written contracts. The proper classification affects your tax obligations and eligibility for certain deductions and benefits.

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    p1779 PDF

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    This document discusses the differences between independent contractors and employees for tax purposes. It provides guidance on how to determine your proper classification based on behavioral control, financial control, and the relationship between you and the business. Behavioral control looks at how much instruction you receive, financial control considers investment and expense reimbursement, and relationship examines benefits and written contracts. The proper classification affects your tax obligations and eligibility for certain deductions and benefits.

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    This document discusses the differences between independent contractors and employees for tax purposes. It provides guidance on how to determine your proper classification based on behavioral control, financial control, and the relationship between you and the business. Behavioral control looks at how much instruction you receive, financial control considers investment and expense reimbursement, and relationship examines benefits and written contracts. The proper classification affects your tax obligations and eligibility for certain deductions and benefits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    92 views2 pages

    p1779 PDF

    Uploaded by

    k
    This document discusses the differences between independent contractors and employees for tax purposes. It provides guidance on how to determine your proper classification based on behavioral control, financial control, and the relationship between you and the business. Behavioral control looks at how much instruction you receive, financial control considers investment and expense reimbursement, and relationship examines benefits and written contracts. The proper classification affects your tax obligations and eligibility for certain deductions and benefits.

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    ?

    IRS Tax Publications


    If you are not sure whether you are an employee or an
    independent contractor, get Form SS-8, Determination of
    Worker Status for Purposes of Federal Employment Taxes
    and Income Tax Withholding. Publication 15-A, Employer’s
    Supplemental Tax Guide, provides additional information
    on independent contractor status.

    IRS Electronic Services


    You can download and print IRS publications, forms, and
    other tax information materials on the Internet at www.
    irs.gov. You can also call the IRS at 1-800-829-3676
    (1-800-TAX-FORM) to order free tax publications and

    ?
    forms.

    Publication 1796, 2007 IRS Tax Products CD (Final Re- INDEPENDENT


    lease), containing current and prior year tax publications CONTRACTOR
    and forms, can be purchased from the National Techni-
    cal Information Service (NTIS). You can order Publication
    1796 toll-free by calling 1-877-233-6767 or via the Internet
    at www.irs.gov/cdorders.

    OR
    Call 1-800-829-4933, the Business and Speciality Tax
    Line, if you have questions related to employment tax
    issues.

    EMPLOYEE

    Publication 1779 (Rev. 3-2012) Catalog Number 16134L


    Department of the Treasury Internal Revenue Service www.irs.gov
    Independent Contractor or Employee
    Which are you?
    When You Are an Employee...
    „„ Your employer must withhold income tax and your
    For federal tax purposes, this is an important distinction. Worker classification affects how you pay your federal income portion of social security and Medicare taxes. Also,
    tax, social security and Medicare taxes, and how you file your tax return. Classification affects your eligibility for social your employer is responsible for paying social
    security, Medicare, and unemployment (FUTA) taxes
    security and Medicare benefits, employer provided benefits and your tax responsibilities. If you aren’t sure of your work on your wages. Your employer must give you a Form
    status, you should find out now. This brochure can help you. W-2, Wage and Tax Statement, showing the amount
    of taxes withheld from your pay.

    „„ You may deduct unreimbursed employee business


    The courts have considered many facts in deciding Financial Control expenses on Schedule A of your income tax return,
    whether a worker is an independent contractor or an em- These facts show whether there is a right to direct or but only if you itemize deductions and they total more
    ployee. These relevant facts fall into three main categories: control the business part of the work. For example: than two percent of your adjusted gross income.
    behavioral control; financial control; and relationship of
    the parties. In each case, it is very important to consider Significant Investment – if you have a significant When You Are an Independent
    all the facts – no single fact provides the answer. Carefully investment in your work, you may be an independent Contractor...
    review the following definitions. contractor. While there is no precise dollar test, the „„ The business may be required to give you Form 1099-
    investment must have substance. However, a signifi- MISC, Miscellaneous Income, to report what it has
    Behavioral Control cant investment is not necessary to be an independent paid to you.
    These facts show whether there is a right to direct or contractor.
    control how the worker does the work. A worker is an „„ You are responsible for paying your own income tax
    employee when the business has the right to direct and
    Expenses – if you are not reimbursed for some or all and self-employment tax (Self-Employment Contribu-
    business expenses, then you may be an independent tions Act – SECA). The business does not withhold
    control the worker. The business does not have to actually
    contractor, especially if your unreimbursed business taxes from your pay. You may need to make esti-
    direct or control the way the work is done – as long as the
    expenses are high. mated tax payments during the year to cover your tax
    employer has the right to direct and control the work. For
    example: liabilities.

    ?
    Opportunity for Profit or Loss – if you can
    realize a profit or incur a loss, this suggests that you
    Instructions – if you receive extensive instructions „„ You may deduct business expenses on Schedule C of
    are in business for yourself and that you may be an your income tax return.
    on how work is to be done, this suggests that you are
    independent contractor.
    an employee. Instructions can cover a wide range of
    topics, for example:
    Relationship of the Parties
    • how, when, or where to do the work These are facts that illustrate how the business and the
    worker perceive their relationship. For example:
    • what tools or equipment to use
    Employee Benefits – if you receive benefits, such as
    • what assistants to hire to help with the work insurance, pension, or paid leave, this is an indication that
    you may be an employee. If you do not receive benefits,
    • where to purchase supplies and services however, you could be either an employee or an indepen-
    dent contractor.
    If you receive less extensive instructions about what
    should be done, but not how it should be done, you Written Contracts – a written contract may show what
    may be an independent contractor. For instance, both you and the business intend. This may be very
    instructions about time and place may be less important significant if it is difficult, if not impossible, to determine
    than directions on how the work is performed. status based on other facts.
    Training – if the business provides you with training
    about required procedures and methods, this indicates
    that the business wants the work done in a certain way,
    and this suggests that you may be an employee.

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