Employees or Independent Contractors 


More and more professionals receiving 1099-Miscs these days for their services instead of W-2s may create confusions and potential tax treatment issues. What should taxpayers do as payers or payees? Per IRS Publication 1779, it is critical that business owners (payers) determine whether the individuals (payees) providing services are their employees or independent contractors. Though there is no magic set number of factors that makes the worker an employee or an independent contractor, misclassification of employees as independent contractors is a serious issue, and could cost business owners money and liability.


Facts that provide evidence of the degree of control and independence fall into three categories:


  1. Behavioral: Does the business control or have the right to control what and how the worker does his or her job, such as who provides tools, supplies?

  2. Financial: Are the financial aspects of the worker’s job controlled by the payer, such as how worker is paid, whether expenses are reimbursed?

  3. Relationship: Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? 

If business owners misclassify employees as independent contractors and they have no reasonable basis for doing so, they may be held liable for employment taxes for those workers.

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