The way we work and the state of the job market has changed drastically over the last few years with more and more taxpayers earning income from gig/freelance jobs as opposed to a more traditional 9-5 employer. For employers, making the incorrect employment status classification for tax purposes can result in hefty fines from the IRS.
Below, you’ll find a few of the top questions from a recent webinar on this topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: What period would normally be covered through §530 relief or by the closing agreement in a Voluntary Classification Settlement Program (VCSP) case?
A: Section 530 relief is usually given during a worker’s classification audit. The periods would vary based on the examination year. This information would be obtained by the IRS. For a VSCP agreement, the date would cover the 60 days after the application has been filed and any future years.
Q: Can an independent contractor request that federal and state taxes be withheld?
A: An independent contractor is self-employed. The earnings of a person who is working as an independent contractor are subject to self-employment tax.
Q: When would an employer complete an SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding?
A: Request an SS-8 determination letter only to resolve the status of a worker who may be subject to federal employment taxes and income tax withholding. To determine the worker’s status, an employer should first apply the IRS 20-point test (see https://www.irs.gov/pub/irs-utl/x-26-07.pdf). If still unsure, request the letter.
Q: If you know you are only going to need someone for two months, can you hire them as an independent contractor?
A: The common law rules for employees includes a classification for “temporary.” So, the time needed is not a determining factor in classifying a worker as employee or contractor. Generally, under the common law rules, a worker is an employee if the firm has the right to control what will be done and how it will be done. (See Slide 10 of the webinar.)
To learn more about employee classification, penalties and necessary tax forms, 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 join our completely free 30-day trial, visit natptax.com/explore.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.