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Tax Tip of the Week | No. 333 | IRS Abandons Traditional Independent Contractor vs. Employee Test December 16, 2015

Posted by bradstreetblogger in : Deductions, General, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes , trackback

Tax Tip of the Week | December 16, 2015 | No. 333 | IRS Abandons Traditional Independent Contractor vs. Employee Test

For years, it has always been a struggle to determine whether a worker is an employee or an independent contractor. Now that some employers are required to offer health insurance under the Affordable Care Act, the bias among employers will be to treat as many workers as possible as independent contractors.

The IRS has given up its long used 20-factor test, replacing it with a 3-factor test it has been pushing in court cases. The previous test included the extent to which workers provided their own tools and supplies, provided services only for that firm vs. working for others, how and when their work was performed, and other factors.

The IRS fact sheet now states that instead of the 20 factors, businesses and other entities should examine the degree of control and independence in three categories:

1.    Behavioral. Does the business control or have the right to control what the worker does and how the worker does the job?
2.    Financial. Are the business aspects of the worker’s tasks controlled by the business —how the worker is paid, whether expenses are reimbursed, who provides tools and supplies, etc.?
3.    Relational. Is there a contract in writing? Is the work performed a key aspect of the business? Are these workers given employee-type benefits—e.g., vacation pay, a pension plan or medical insurance? Will the work relationship continue?

Some tax advisors say the change is little more than a different way of applying the same tests. Others say the three-category test will result in fewer workers being considered ICs. Give us a call to discuss your situation.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.
Rick Prewitt – the guy behind TTW

…until next week.


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