Independent contractor vs. employee<\/strong>
Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to consider<\/a>.<\/p>\n\n\n
- Behavioral control<\/strong> \u2212 Does the company control or have the right to control what the worker does and how the worker does the job?<\/li>
- Financial control<\/strong> \u2212 Does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools\/supplies, etc.<\/li>
- Relationship of the parties<\/strong> \u2212 Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business?<\/li><\/ul>\n\n\n\n
Misclassified worker<\/strong>
Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors generally must receive a determination of worker status<\/a> from the IRS. Then they can use Form 8919, Uncollected Social Security and Medicare Tax on Wages<\/a> to figure and report their share of uncollected social security and Medicare taxes due on their compensation.
Voluntary Classification Settlement Program<\/strong>
The Voluntary Classification Settlement Program<\/a> is an optional program that provides businesses with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible businesses who agree to prospectively treat their workers as employees. Businesses must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program<\/a>, and enter into a closing agreement with the IRS
Who is self-employed?<\/strong>
Generally, someone is self-employed if any of the following apply to them.<\/p>\n\n\n\n- They carry on a trade or business as a sole proprietor<\/a> or an independent contractor<\/a>.<\/li>
- They are a member of a partnership <\/a>that carries on a trade or business<\/a>.<\/li>
- They are otherwise in business for themselves, including a part-time business<\/a>.<\/li><\/ul>\n\n\n\n
Self-employed individuals, including those who earn money from gig economy<\/a> work, are generally required to file an tax return and make estimated quarterly tax payments<\/a>. They also generally must pay self-employment tax which is social security and Medicare tax as well as income tax. These taxpayers may qualify for the home office deduction<\/a> if they use part of a home for business.<\/p>\n\n\n\n
Still need tax help? Call our office at 816-524-4949 or click here<\/a> to schedule a consultation.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"
A business might pay an independent contractor and an employee for the same or similar work, but there are key legal differences between the two. It is critical for business owners to correctly determine whether the people providing services are … Continue reading
- They are a member of a partnership <\/a>that carries on a trade or business<\/a>.<\/li>
- Financial control<\/strong> \u2212 Does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools\/supplies, etc.<\/li>