You can face serious consequences if you do not know the difference between an employee and an independent contractor. It could cause you to unknowingly misclassify your workers. Business & Financial Solutions has educated companies and employees on the issues affecting both sides of the working relationship. We have helped prevent and/or solve problems with IRS. Form SS-8 is used by individuals and firms. The purpose is to request a determination of the status of a worker under the common law rules for purposes of federal employment taxes and income tax withholding.
Many businesses have workers who may be classified incorrectly. Some of these workers have filed form SS-8. Some are in the form of a complaint. This complaint is against the employer in order to resolve self-employment tax issues. They believe that they qualify for misclassification of work status. Usually, this misclassification happens when workers are classified as independent contractors, but the workers may be employees instead. It is important to know whether a worker is an employee or an independent contractor, mainly because of payroll taxes.
Some employers prefer to classify workers as independent contractors to lower costs, even if it means less control over a worker’s day-to-day activities. But the government is cracking down on businesses that classify workers as independent contractors to reduce taxes or avoid their health insurance obligations under the Affordable Care Act (ACA). The IRS believes that millions of workers have been misclassified as independent contractors. In doing so, instead of hiring them as employees, the government has been denied substantial payment of employment-related taxes.
Here are seven things every business owner should know about hiring people as independent contractors. This may or may not be preferred versus hiring them as employees.
Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result, then your workers are probably independent contractors.
Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov. Select the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website. You can also call the IRS at 800-829-3676 (800-TAX-FORM).
If you find yourself stilled confused, please feel free to call Business & Financial Solutions. We answer your questions if you are uncertain about the SS-8. Schedule an appointment with one of our tax experts and can help you sort through your specific issues.