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.
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
See Pub. 15-A for details on statutory employees.
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.
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.
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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