Tax Exempt & Federal, State, and Local Governments
Government Entities
Employee or
Independent Contractor?
www.irs.gov
Why?
• Workers comp. providers
• Department of Labor
• State governments
• Social Security Administration
• Millions misclassified
• Prevent future liability
• Employers fail to deposit their full share
• Workers miss out on benefits
Objectives
• Define an employee under the Internal Revenue
Code
• Determine whether a worker is an employee or
independent contractor
• Report payments to workers
• Get assistance using Form SS-8
• Correct for misclassifications (VCSP)
Define “Employee”
• Internal Revenue Code & Treasury Regulations:
Common law
• Specific tax statute
• Section 218 defined
Public Officials
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Mayor
Legislator or elected representative
County commissioner
Judge/justice of the peace
County/city attorney, marshal, sheriff, constable
Registrar of deeds
Tax collector or assessor
Road commissioner
Board members
Common-Law Employee
An employer-employee relationship exists when the
person for whom services are performed has the
right to control and direct the individual who
performs the services, not only as to result, but also
as to details and means.
Control Test
• Worker subject to control over:
• What is to be done
• How it is to be done
Common Law Factors
Revenue Ruling 87-41
20 Factors
Categories of Control
Common law recognizes 3 categories of evidence
to consider when making a determination of
employee status:
1. Behavioral control
2. Financial control
3. Relationship of the parties
Behavioral Control
• Indicators:
• Instruction
• Training
• Location of work
• Work Schedule
• Meetings
• Reports
• Providing services personally
Financial Control
• Indicators:
• Equipment, tools, or facilities
• Unreimbursed expenses
• Profit motive
• Frequency and timing of pay
• Liability coverage
Relationship of the Parties
• Indicators:
• Benefits
• Discharge/termination rights
• Permanency
• Integral function
Example
Independent Contractors may retain:
• Right to hire
• Right to manage & direct workers
• Right to substitute
• Right to pay substitute
Example
Employees may retain right to:
• Permanence
• Benefits
• Quit
Form SS-8
• If you’re unsure of worker status?
• Complete Form SS-8 for IRS determination
• Information requested from worker and payer
• Not an audit
Employee
• Forms and Filing Requirements:
• Secure W-4 before paying employees
• File Form W-2 and W-3
• Form 941 for Employment Tax Withholding
Independent Contractor
• Forms and Filing Requirements:
• W-9 info. before vendor payment
• File Form 1099-MISC and 1096
• Form 945 for Backup Withholding
Recap
1. Define an employee
• the right to control and direct the individual
2. Determine whether a worker is an employee or
independent contractor
• three broad categories of evidence
3. Report payments to workers
• W2 Wages or 1099-Misc
4. Need Help?
• Use Form SS-8
Mayor & Council Member
• How to report their compensation?
• Each receive $100 per month
• Currently reported on Form 1099-Misc
• Elected officials specifically identified as employees in
tax law
• Employment taxes and W-2 required
Monday Public School District
• Additional Duties & Control Relationship
• Full time duties in principal’s office
• Occasional duties for athletic director
• Currently receives W-2 & 1099-Misc
• Additional duties do not change school district’s control
as employer
• Employment taxes and W-2 required
Voluntary Classification Settlement
Program
• Partial relief from federal employment taxes with
reclassification:
• Certain eligibility requirements apply
• Form 8952, Closing Agreement
• See Announcement 2012-45
• www.irs.gov “Voluntary Classification Settlement
Program”
Resources
• Revenue Ruling 87-41; Twenty Common Law Factors
• Form SS-8
• Publication 963
• Publication 15-A
• Publication 1779
Resources
• To find an FSLG specialist in your state
• www.irs.gov
Keyword Search: FSLG Newsletter
• Pre-recorded IRS Webinars
• www.irsvideos.gov/Governments
• Voluntary Classification Settlement Program
(VCSP):
• www.irs.gov/Businesses/Small-Businesses-&-SelfEmployed/Voluntary-Classification-Settlement-Program
• To find your State Social Security Administrator:
• http://www.ncsssa.org/statessadminmenu.html
Department of the Treasury
Internal Revenue Service
www.IRS.gov
Thank you!
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www.IRS.gov