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Although I offer the Freelancer's FAQ information free of charge, I'm finding that the costs of operating a web site are steadily increasing. If you find this information useful, a donation would be gladly appreciated.
Anne W.

Anne Wallingford, WordSmith

 

Freelancer's FAQ



IRS Guidelines


IRS Guidelines: Employee or Independent?

As the roles of employee, temporary worker, and independent worker evolve, the federal government is establishing guidelines to clarify who falls into each category and who owes what taxes. Contractual agreements protect both sides.

Sometimes, freelancers mistakenly think that a client is paying the withholding taxes. Beginners may not even be aware that withholding taxes are their responsibility simply because, as an employee, they never paid the entire tax.

Sometimes, a client may insist that a freelancer work as if he or she was an employee. This can happen whether or not any on the job or computer training is necessary. If this happens, the IRS could insist that the client pay taxes as if the freelancer was an employee. For example, if the client requires work to be done on-premises during the course of an assignment, this might bring the IRS down on the firm.

I strongly urge both freelancers and prospective employers to read through the IRS guidelines. By contacting the IRS you will have a better idea as to how you should tackle your online tax preparation. I've summarized the main points below, but for a complete listing order your own copy. Call 800-829-3676 and ask for IRS publication #15A.

Employee vs. Independent Guidelines

1. Instructions
A worker who is required to comply with another person's instructions about when, where, and how to work is an employee.
2. Training
Requiring a worker to attend meetings, work with someone more experienced, or otherwise perform in a particular manner indicates employee status.
3. Integration
The degree to which a business depends on the worker's services influences employee status.
4. Services rendered personally
If services must be rendered personally, employee status is indicated.
5. Hiring, supervising, paying assistants
If services can be delegated or subcontracted at the worker's election, with that worker paying for such help, then independent contractor status is indicated.
6. Continuing relationship
A continuing relationship, even one which recurs at irregular intervals, indicates employee status.
7. Set hours of work
If the hours of work are determined by the person for whom the work is being performed, employee status is indicated.
8. Full time required
If the worker is required to work full time and there is an implicit or explicit restriction on doing other work, employee status is indicated.
9. Doing work on employer's premises
This suggest control over the worker, especially if such work could be performed elsewhere. Employee status.
10. Order or sequence set
If the worker must perform services in the order determined by the person for whom the services are done, this indicates employee status.
11. Oral or written reports
If the worker is required to submit regular reports, this indicates employee status.
12. Payment method
An employee is usually paid by the hour, week, or month. The independent contractor is paid by the job.
13. Payment of business expenses
Payment of worker's expenses and traveling expenses indicate employee status. (Note: Independents have to estimate and include these fees in the job quote.)
14. Furnishing of tools and materials
The furnishing of significant tools, materials, or other equipment by the user indicates employee status.
15. Significant investment
Lack of investment in facilities indicates dependence on the person for whom the services are performed. Employee status.
16. Realization of profit or loss
A worker who can realize profit or suffer a loss as a result of services performed is generally considered an independent contractor; a worker who cannot do so is an employee.
17. Working for more than one firm at a time
If the worker performs more than minimal service for a number of persons at the same time, this indicates independent status.
18. Making services available to the general public
An independent makes his/her services available to the general public.
19. Right to discharge
The right to discharge a worker indicates employee status; an independent's termination depends upon contractual terms.
20. Right to terminate
If the worker has the right to end his/her relationship at any time, this indicates employee status; an independent is contractually bound to complete an assignment.



Please feel free to share your ideas about this topic, send me a message—click on the link below. - Anne W.

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081007 011712 Friday, June 08, 2012