ABC Taxes, Tips & Tools

There are sev­eral dif­fer­ent kinds of work­ers and employ­ees.  A worker can be an Inde­pen­dent Con­trac­tor, Employee, Statu­tory Employee or Statu­tory Non-employee.

The rules for Statu­tory Employ­ees were writ­ten for

• dri­vers (other than milk men-don’t ask me why) such as those that deliver meat, fruit, veg­eta­bles, bak­ery prod­ucts & pick-up and drop laundry
• full-time insur­ance agents whose prin­ci­pal busi­ness is sell­ing life insur­ance and annu­ity contracts
• full-time trav­el­ing sales peo­ple who solicit and trans­mit orders from whole­salers, retail­ers, con­trac­tors or oper­a­tors of hotels, restau­rants and other sim­i­lar establishments
• indi­vid­u­als who work at home on mate­ri­als or goods sup­plied by an employer that must be returned to an employer when the employer fur­nishes spec­i­fi­ca­tions regard­ing the work.

Why would a busi­ness care?  Some employ­ers maybe clas­si­fy­ing these work­ers as Inde­pen­dent Con­trac­tors and think they do not need to with­hold employ­ment taxes, but an employer could be wrong.  The penal­ties for a mis­clas­si­fied a worker can be severe.  Under the rules for Statu­tory Employ­ees, the employer must with­hold Social Secu­rity and Medicare, and pay Fed­eral Unem­ploy­ment Tax (FUTA) but does not need to with­hold Fed­eral Income Tax.  Also, if the employee is a full-time insur­ance agent the employer does not have to pay FUTA. If a home worker is defined as a Statu­tory Employee by the IRS the employer must pay employ­ment taxes.

The home worker rules were orig­i­nally writ­ten for the gar­ment indus­try, where home work­ers would assem­ble dresses and the like at home from mate­ri­als sup­plied by the manufacturer/empoyer and to the manufacturer/employer’s spec­i­fi­ca­tions.  How­ever the IRS is seek­ing to expand the def­i­n­i­tion of Statu­tory Employ­ees to include cer­tain com­puter pro­gram­mers, graphic artists, and other tech­nol­ogy workers.

The key is whether such a worker could be called an inde­pen­dent con­trac­tor or not.  For home work­ers, three fac­tors come into play:

1. Whether the work has to be sub­stan­tially per­formed by the home worker or can they del­e­gate the work to some­one else.
2. Whether the worker has a sub­stan­tial invest­ment in facil­i­ties  in con­nec­tion with the ser­vices to be performed
3. Whether the ser­vices are per­formed as part of a con­tin­u­ing rela­tion­ship or as a sin­gle transaction

When talk­ing about these tech­nol­ogy work­ers, the IRS has deter­mined that the tech­nol­ogy these home work­ers pro­vide: Tele­phone, com­puter, printer, online access etc. does not con­sti­tute a sub­stan­tial invest­ment unless the worker spends thou­sands of dol­lars on this tech­nol­ogy.  Also the return of mate­ri­als rules that orig­i­nally applied to gar­ment work­ers also applies here — the goods the worker mod­i­fies, or assem­bles & is required to return to the employer can include soft­ware tem­plates and other elec­tronic infor­ma­tion, that can be returned electronically.

If you have any ques­tions regard­ing whether have inde­pen­dent con­trac­tors or employ­ees, or need help with any other busi­ness or indi­vid­ual tax ques­tion, Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice.  Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.