by steve | Mar 20, 2011 | IRS Tax Advice, Tax News
Affordable Fresh Start Tax LLC “A” Plus Rated by the Better Business Bureau
A Professional Expert Tax Firm Practicing Tax Law since 1982
Hire a professional expert tax firm with over 140 years of IRS tax experience and over 60 years of working for the IRS.
We are former IRS Agents and Managers that are IRS Tax Experts for Tax Audit and Payroll Tax Audits.
Independent Contractor (Self-Employed) or Employee?irs reg 530 payroll tax audit
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
Determining Whether the Individuals Providing Services are Employees or Independent Contractors
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be –
1. An independent contractor
2.An employee (common-law employee)
3.A statutory employee
4.A statutory nonemployee
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:
1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3.Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor.
Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
Form SS-8
If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.
Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF).
Employment Tax Obligations
Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.
Consequences of Treating an Employee as an Independent Contractor
If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker (the relief provisions, discussed below, will not apply). See Internal Revenue Code section 3509 for more information.
Relief Provisions
If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. See Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) for more information.
Misclassified Workers Can File Social Security Tax Form
Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. See the full article Misclassified Workers to File New Social Security Tax Form for more information.
References/Related Topics
by steve | Dec 14, 2010 | IRS Tax Audit, Payroll Tax Audits, Representation
IRS Payroll Tax Audit – Professional Audit Tax Help – Fresh Start Tax – Miami, Ft.Lauderdale, West Palm
Fresh Start Tax 954-492-0088 South Florida’s Premier Tax Firm for IRS Payroll and Income Tax audits.
Former IRS Agents, Managers .
We have over 60 years of direct IRS expereince out of the South Florida IRS offices.
We know the system. We can stop the worry today.
Our tax practice is dedicated to IRS Representation. Our tax professionals have been serving the South Florida area since 1982. We are comprised of Former IRS agents ,managers and instructors along with Board Certified Tax Attorney’s and CPA’s. We have 205 years of direct IRS experience.
As former IRS agents we use to audit companies for payroll tax audits. We know all the tax strategies for the very best resolution.
How IRS makes their determinations:
To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered.
The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Relationship of the Parties.
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.
This includes:
* The extent to which the worker has unreimbursed business expenses
* The extent of the worker’s investment in the facilities used in performing services
* The extent to which the worker makes his or her services available to the relevant market
* How the business pays the worker, and
* The extent to which the worker can realize a profit or incur a loss
Relationship of the Parties covers facts that show how the parties perceive their relationship. This includes:
* Written contracts describing the relationship the parties intended to create,
* The extent to which the worker is available to perform services for other, similar businesses,
* Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay,
* The permanency of the relationship, and,
* The extent to which services performed by the worker are a key aspect of the regular business of the company
Call us today to have Former IRS agents who worked out the local IRS get you results.
Free Tax Consults, 954-492-0088.
by steve | Aug 25, 2010 | IRS Tax Advice
Fresh Start Tax is a honest,affordable, professional tax resolution company that specializes in payroll tax audits with the Internal Revenue Service. 1-866-700-1040. We have the highest rating given to anyone in our industry by the Better Business Bureau. Check us out on the web www.freshstarttax or Skype us today at Fresh Start Tax. We are licensed in all 50 States.
Are staff is compromised of former IRS Agents, Managers and IRS instructors who taught other agents how to handle these cases. We know how to correct your situation as well. We also work out settlements with the IRS. We are the best!!!
Some tax tips from IRS and Fresh Start Tax
As 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 seven 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 misclassified 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.
7. You can learn more about the critical determination of a worker?s status as an Independent Contractor or Employee at IRS.gov by selecting 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 or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Call us today. 1-866-700-1040 www. Freshstarttax free video conferencing available
