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Are independent contractors really employees? The IRS wants to know

Real Estate Tax Talk

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A hot-button issue for the Internal Revenue Service is the misclassification of employees as independent contractors for employment tax purposes. Classifying a worker as an independent contractor instead of an employee can save a hiring firm a lot of money because it doesn't have to pay half the worker's Social Security and Medicare taxes out of its own pocket (as it does for employees), or withhold any tax from the worker's pay. All the hiring firm needs to do is file a Form 1099-MISC with the IRS each year reporting how much the contractor was paid (if paid more than $600). The IRS believes that many employers have classified workers as independent contractors when they should have been employees. This could be intentional, but very often it's not. In many cases it can be very hard to tell if a worker is an employee or independent contractor. The IRS relies on a complex and confusing "right of control" test. Under this test, a worker is an employee if the hiri...