Taxpayer classification made easy: employee or contractor?

It’s often easier (and less expensive) for a business to classify its workers as independent contractors. However, the IRS is aware of this, and in recent years, has increased its emphasis on ensuring that employers are properly classifying their workers. Businesses that are misclassifying employees may be at an increased risk of audit.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: How quickly does the Form SS-8 get turned around, and how should an employer pay the employee or contractor in the interim?

A: The IRS states it can take up to six months for a determination. Importantly, this determination does not necessarily reduce any current or prior tax liability. If the employment status differs from what was expected, the IRS may require amended returns.

Q: How many years back can you file a Form SS-8?

A: The IRS will only issue determinations based on Form SS-8 for tax years that are still open. Typically, this period is the latter of three years from the date the original return was filed or two years from the date the tax was paid.

Q: Where can you find the Department of Labor’s independent contractor rules?

A: You can access the Department of Labor’s announcement of the new final rule, including links to the rule, an FAQ, and a small entity compliance guide.

Q: Can you appeal a Form SS-8 determination?

A: An IRS determination on Form SS-8 is final, and there is no formal appeal within the agency. However, if you disagree, you can provide additional information or highlight facts from your original submission that you believe were not adequately considered and request a reconsideration.

To learn more about classifying a taxpayer as employee or contractor, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.