Independent Contractors: Still a Focus for the IRS & States

Independent contractor vs. employee for tax purposes


A factor test to determine wheather a worker is an employee or an independent contractor. No one factor is determinative, and both the nature of the company's business, and the industry standard are taken into account. The factors:

1. Is the worker free from company control regarding how, when and where the work is done?

2. Does the company or the worker decide the order in which tasks are done?

3. Does the worker have the ability to subcontract work, or does the employer hire assistants to help the worker?

4. Does the employer or the worker provide the tools, equipment, and/or supplies necessary to do the work?

5. Does the employer provide training for the worker?

6. Does the worker receive a salary? Does the worker get paid by the hour, day, week?

7. Can the worker increase his or her financial gain by working more efficiently?

8. Conversely, does the worker risk losing money if unexpected problems arise?

9. Does the worker provide services to more than one employer, or make the services available to the general public?

10. Does the worker advertise?

11. Does the worker bill the payer?

12. Is the worker a professional?

The IRS might question an employer's classification if: 1) the emplyer reports more independent contractor compensation thatn is standard in the industry; 2) a worker used to recieve W-2s and now receives 1099s; or 3) a worker's income tax return shows he or she received 1099 income from only one employer.

Obviously if the individual incorporates his, her or their business then paying a corporation get rid of the issue.


Last Updated: September 28, 2008

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