Generally, employees are defined either under common law or under
special statutes for certain situations.
Employee status under common law.
Generally, a worker who performs services for you is your employee
if you can control what will be done and how it will be done. This is
so even when you give the employee freedom of action. What matters is
that you have the right to control the details of how the services are
performed. See Pub. 15-A, Employer's Supplemental Tax
Guide, for more information on how to determine whether an individual
providing services is an independent contractor or an employee.
Generally, people in business for themselves are not employees. For
example, doctors, lawyers, veterinarians, construction contractors,
and others in an independent trade in which they offer their services
to the public are usually not employees. However, if the business is
incorporated, corporate officers who work in the business are
employees.
If an employer-employee relationship exists, it does not matter
what it is called. The employee may be called an agent or independent
contractor. It also does not matter how payments are measured or paid,
what they are called, or if the employee works full or part time.
Statutory employees.
If someone who works for you is not an employee under the common
law rules discussed above, do not withhold Federal income tax from his
or her pay. Although the following persons may not be common law
employees, they may be considered employees by statute for social
security, Medicare, and FUTA tax purposes under certain conditions.
- An agent (or commission) driver who delivers food, beverages
(other than milk), laundry, or dry cleaning for someone else.
- A full-time life insurance salesperson.
- A homeworker who works by guidelines of the person for whom
the work is done, with materials furnished by and returned to that
person or to someone that person designates.
- A traveling or city salesperson (other than an agent-driver
or commission-driver) who works full time (except for sideline sales
activities) for one firm or person getting orders from customers. The
orders must be for items for resale or use as supplies in the
customer's business. The customers must be retailers, wholesalers,
contractors, or operators of hotels, restaurants, or other businesses
dealing with food or lodging.
See Pub. 15-A for details on statutory employees.
Statutory nonemployees.
Direct sellers and qualified real estate agents are by law
considered nonemployees. They are instead treated as self-employed for
all Federal tax purposes, including income and employment taxes. See
Pub. 15-A for details.
Treating employees as nonemployees.
You will be liable for social security and Medicare taxes and
withheld income tax if you do not deduct and withhold them because you
treat an employee as a nonemployee. See Internal Revenue Code section
3509 for details.
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
information returns (Form 1099-MISC) 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.
IRS help.
If you want the IRS to determine whether a worker is an employee,
file Form SS-8, Determination of Worker Status for Purposes
of Federal Employment Taxes and Income Tax Withholding.
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