Independent Contractor vs. Employee: How the IRS Decides
Calling a worker a 1099 doesn't make them one. The IRS uses three categories of facts to decide — and they bill back-taxes on misclassifications.
Worker classification is one of the most-audited areas of payroll tax compliance. The IRS uses a 20-factor test, summarized into three categories: behavioral control, financial control, and the nature of the relationship.
Key terms
- Behavioral control
- Does the company direct how the work is done, when, and where?
- Financial control
- Who supplies tools? Is the worker paid by the hour or by the project? Can they realize profit or loss?
- Relationship type
- Written contract? Benefits? Permanency? Services central to the business?
Frequently Asked Questions
How PF Consulting Firm can help
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