INDEPENDENT CONTRACTOR
Independent Contractor or Employee: Misclassification of EmployeesMisclassification of employees is an area of special IRS concern and puts your business at extreme risk. The penalties for non-compliance can be severe!
You should generally assume that all workers should be classified as employees unless you are absolutely sure that they are PROPERLY classified as independent contractors. [MORE FROM THE IRS] See also: Form SS-8 Instructions IRS Staff Training Manual: Independent Contractor or Employee? It's Goalkeeper vs. Bookkeeper as I.R.S. Audits Youth Soccer - ArticleNew York Times
By Tina Kelley Fairfield, Connecticut, June 22 - Soccer seemed a simpler game when Jay Skelton coaches his eldest son's kindergarten team nine years ago. This was before 5-year-olds went to goalie clinics, before teams took two-week trips to Europe, before the world's most popular game consumed his suburban life. Today Mr. Skelton is president of his son's league, the Fairfield United Soccer Association, and he presides over a far more complex enterprise. Its 45 elite teams travel across the state and beyond for tournaments, training rigorously with paid college-level coaches. And its budget has boomed, with the group raising $392,000 in dues in 2004, according to tax returns. The Internal Revenue Service has taken notice. For the past two years, the association has been grappling with an I.R.S. audit that found the association failed to withhold taxes for a dozen paid coaches and scores of referees in 2003 and 2004. The I.R.S. assessed the association $334,441 in back taxes and fines, an amount Mr. Skelton says will drive the nonprofit league out of business. For complete article click here |
Maryland Workplace Fraud ActFederal and State tax and labor laws use different tests to determine if a worker is an employee or an independent contractor. The common factor under all of these tests is: how much direction and control does the employer have over the worker and the work performed?
The Workplace Fraud Act adopts the ABC test, which has long been used in Maryland's Unemployment Insurance law, to determine whether a worker in the construction or landscaping industries is an employee or an independent contractor. [MORE FROM MARYLAND DLLR] Independent Contractor DefinedFrom: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Defined
People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax. If you are an independent contractor, you are self-employed. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor |
Employee vs. Independent Contractor – Tips for Business OwnersAs a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file. Here are a few things every business owner should know about hiring people as independent contractors versus hiring them as employees.
1. The IRS uses three characteristics to determine the relationship between businesses and workers: * 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. 2. 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. 3. 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. 4. 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. 5. Workers can avoid higher tax bills and lost benefits if they know their proper status. 6. 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. 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? |
Independent Contractor DefinedFrom: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Defined
People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax. If you are an independent contractor, you are self-employed. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor |
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Employee vs. Independent Contractor – Tips for Business OwnersAs a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file. Here are a few things every business owner should know about hiring people as independent contractors versus hiring them as employees.
1. The IRS uses three characteristics to determine the relationship between businesses and workers: * 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. 2. 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. 3. 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. 4. 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. 5. Workers can avoid higher tax bills and lost benefits if they know their proper status. 6. 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. 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? |