Financial ascendancy is the employer’s appropriate to absolute or ascendancy the banking and business aspects. Examples are the employer accouterment accessories for use, giving affirmed and approved accomplishment and reimbursing expenses. The added banking control, the added acceptable a artisan is an employee.
Relationship is how the employer and artisan apperceive their interactions with anniversary other. Was there a arrangement that describes the relationship? Does the employer accommodate benefits? Is the artisan perceived as a key or important affiliate of business?
There is no abracadabra blueprint to actuate agent vs. absolute architect — the key is to attending at the absolute relationship. If the employer has abundant ascendancy over the worker, they are an employee. If the artisan has autonomy, they are an absolute contractor.
Right now you may be asking: So what? If you misclassify an agent as an absolute contractor, you would be accountable for contributed application taxes for that worker. Unlike added liabilities, amount taxes not alone attach to the business, but additionally to the being amenable for remitting them. In added words, the employer (farmer) would alone be on the angle for them.
Now that I’ve afraid you, how do you pay advisers and absolute contractors? Advisers are paid wages, which are appear on a 943/W-2. There are two options for employers: Pay banknote accomplishment or article wages. The account to article accomplishment is that the employer and agent are absolved from Social Security and Medicare tax. However, the employer charge be abiding to certificate the alteration of buying of the article as able-bodied as chase added rules.
Independent contractors are paid with banknote or commodities, and the employer letters it on a 1099 form. The absolute architect is amenable for advantageous the self-employment tax on their return. The employer has no fiduciary assignment to aggregate and address amount tax; the albatross is on the absolute contractor.
Now is a acceptable time to analysis agent classification. As ahead stated, there isn’t a hard-and-fast aphorism to actuate if the artisan is an agent or absolute contractor. I acquaint my audience to use the aroma test: If both the employer and artisan act and behave like there is an application relationship, they are an employee. It’s bigger to go through a little added assignment and book the 943/W-2 than potentially owe the IRS for abortion to pay application taxes.
Editor’s Note: Tax Columnist Rod Mauszycki is a CPA and tax accomplice with the accounting close of CliftonLarsonAllen, in Minneapolis, Minnesota. Send questions to [email protected]
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