Today is day two of our week-long series on important deadlines and filing requirements for employers. Today we take a look at the relationship between employers and the person performing services for the employer. We will also look at what information returns an employer should file to report payments made to workers.

Employee versus Independent Contractor

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services.

In determining whether the person providing services is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

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

Behavioral: Does the payer control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor and no one factor stands alone in making this determination.

The keys are to look at the entire relationship and consider the extent of the right to direct and control the worker. Finally, document each of the factors used in coming up with the determination.

If you want the IRS to determine if a specific individual is an independent contractor or an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

For more information on employees and independent contractors refer to:

Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.

Form W-2

If a worker has been determined to be an employee, the employer must:

Complete Form W-2, Wage and Tax Statement.
Submit Copy A of Form W-2 by mail or electronically to the Social Security Administration (SSA), with the transmittal Form W-3, Transmittal of Wage and Tax Statements,by Jan. 31, 2024. If the employer e-files Form(s) W-2 with the SSA, no Form W-3 is required. Their W-2 Online service will create an electronic Form W-3 for you.
Furnish Copies B, C, and 2 of Form W-2 to the employee showing the wages paid and taxes withheld by Jan. 31, 2024.

Important reminder - employers filing 10 or more information returns, including Forms W-2, must file electronically unless granted a waiver by the IRS.

For more information see:

Form 1099-NEC

If the following four conditions are met, you must generally report a payment as non-employee compensation:

You made the payment to someone who is not your employee.
You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
You made the payment to an individual, estate, or, in some cases, a corporation.
You made payments to the payee of at least $600 during the year.

If you paid someone who is not your employee, such as a subcontractor, attorney or accountant, $600 or more for services provided during 2023, you must complete a Form 1099-NEC. You must provide a copy of Form 1099-NEC to the independent contractor by Jan. 31, 2024, and you must also send a copy of this form to the IRS by Jan. 31, 2024.

As a reminder, starting in tax year 2023, if you file 10 or more information returns, you must file them electronically. Business taxpayers can electronically file any Form 1099 series information returns for free with the IRS Information Returns Intake System (IRIS). IRIS accepts Form 1099 series returns for tax year 2022 and after. IRIS is available to any business of any size. It's secure and accurate and it requires no special software. It also reduces the need for paper forms.

For more information, see:

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