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Independent Contractor vs. Employee

Independent Contractor vs. Employee?

If you have a small business that contracts with others for their services, the IRS requires that you pay attention to the specifics of their work relationship with your business.  In other words, contracting with a person to perform services for your business can be a cost-effective way of reducing administrative burdens – but you must carefully categorize these workers.

The IRS can reclassify workers you paid as independent contractors to employees.  This reclassification will bring forth the assessment of employment taxes, penalties and interest for the periods dating back to when the individual began working for the company.

There is a test, called Facts and Circumstances, which applies here, with an emphasis on the level of control that you, as the “employer,” has or is able to exert on the worker.  If you are unsure of how to go about classifying your workers as independent contractors or employees, call us and we can help you assess these facts and circumstances.

We can even request an IRS determination of status for your worker classification issue, so you can be sure to be in compliance on this issue.  The IRS began focusing on worker classification issues in a tax audit initiative that commenced in the calendar year 2010.

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