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Federal Register :: Independent Contractor Status Under the Fair Labor Standards Act

The “New” IRS Independent Contractor Test – The More Things Change The More They Stay The Same

Although the tax preparer always signs the return, you’re ultimately responsible for providing all the information required for the preparer to accurately prepare your return. Anyone paid to https://business-accounting.net/ prepare tax returns for others should have a thorough understanding of tax matters. For more information on how to choose a tax preparer, go to Tips for Choosing a Tax Preparer on IRS.gov.

  • On Form W-2, to figure the correct social security tax to enter in box 4, multiply the amount in box 3 by the social security withholding rate of 6.2% and enter the result in box 4.
  • The Department believes that this flexible approach is supported by the case law and preferable to rigidly and artificially limiting facts to only one factor, as the 2021 IC Rule did.
  • The FUTA tax is part of the federal and state program under the Federal Unemployment Tax Act that pays unemployment compensation to workers who lose their jobs.
  • Electronic submission of Forms W-4R, W-4S, and W-4V.
  • The total number of establishments and governments in the universe used for this analysis is 7,950,800.

Economic reality test to determine economic dependence. This proposed rule would not have tribal implications under Executive Order that would require a tribal summary impact statement. The proposed rule would not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. The effective date of the 2021 IC Rule was March 8, 2021.

B. Proposal To Explain That Independent Contractors Are Not Employees Under the Act

With a multifactor analysis, it is common that some factors will indicate one result while others will indicate another. This difference shows that courts correctly weigh the factors against each other. A factor pointing in a different direction from other factors in any one case is not evidence that a factor is not useful in the run of situations. Mechanically deconstructing court decisions and considering what courts have said about only two factors—even when courts did present their analyses in this manner—ignores the broader approach that most courts have taken in determining worker classification. A couple need not be legally separated to be considered separated—they may deem themselves informally separated when one of the partners has left the household for an indefinite period and the marriage is severed.

  • Documenting your expenses using one of these two methods is so important.
  • It can also encompass continued social changes because it does not presume which aspects of the work relationship are most probative or relevant and leaves open the possibility that changed circumstances may make certain factors more important in certain cases or future scenarios.
  • As such, the Department believes it is appropriate to include exclusivity under this factor as well as the control factor.
  • Using these numbers, the Department estimates that employers will save $369.0 million annually and independent contractors will save $78.1 million annually due to increased clarity .
  • If you have a day job, you can avoid making estimated tax payments by asking your employer to increase the income withheld from your paycheck to offset the taxes that will be due on your business income.
  • In some cases, your employer is required to offer health insurance, unpaid leave, and even paid leave to employees.

The Department used the average of these two estimates, 18.9 million, as the estimated total number of workers working as independent contractors in any job at a given time. Given the prevalence of independent contractors who work sporadically and earn minimal income, adjusting the estimate according to these sources captures some of this population. It is likely that this figure is still an underestimate of the true The “New” IRS Independent Contractor Test – The More Things Change The More They Stay The Same independent contractor pool. The Department requests comments and data on the assumptions made to calculate this estimate. These numbers will thus underestimate the prevalence of independent contracting over a longer timeframe, which may better capture the size of the population. For example, Farrell and Greig used a randomized sample of 1 million Chase customers to estimate prevalence of the Online Platform Economy.

Ensuring new employees provide correct information

Show your payments to the employee as “other compensation” in box 1. Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. The statutory employee can deduct their trade or business expenses from the payments shown on Form W-2.

The “New” IRS Independent Contractor Test – The More Things Change The More They Stay The Same

However, the 2021 IC Rule did not address whether a different combination of factors would yield similar results. Particularly when viewed in the context of repeated statements from the courts that no one factor in the economic reality test is dispositive, the selective reading of an undefined set of cases to support the opposite conclusion is not persuasive. To address what the Department viewed as a “lack of focus in the multifactor balancing test” that led to uncertainty as to how a court would balance the factors and which would be deemed more probative, the 2021 IC Rule identified two factors as more probative than the others.

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