Employee or Contractor

Today TaxMama® hears from Roger in the TaxQuips Forum who is frustrated with the concept. “I guess my question would be, what is different about what I’m doing and, say, a general contractor ICing a plumber regularly to plumb houses he is building?

Or a magazine that subs out to a freelance writer? These guys all own and service their own equipment, trucks and tools, buy their own gas and supplies, hire their own employees. I just don’t see how they could consider that my employee. What is the distinguishing factor that says one is or is not an employee? Is this even something I should worry about?


Dear Roger,

The big difference? The general contractor is working with licensed CONTRACTORS.
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For instance, in the state of California, in the construction industry, if a contractor hires workers, they must all be on payroll unless they are licensed contractors.
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Period. There is no gray area. In fact, someone I know hired day laborers to work on his own lawn. A neighbor called the state and he was fined, on the spot, for not putting them on payroll. (I never did understand that one.)

It’s a complex issue. And I could devote about 8-10 hours explaining all the regulations, Tax Court cases etc. And it’s one I enjoy playing around with. But…for now…just follow the above guidelines and ensure they have licenses. Don’t guess. Get copies for your file. Also, get a new Form W-9 signed by them each year.

The fact that they have employees working for them helps to define that they are in business. What are the specific guidelines? Well, read the instructions to IRS Form SS-8 and look at the form in detail. This is the questionnaire that the IRS uses to make a specific determination of whether someone is an employee or not.

To read the rest of the comments – and the problem that often arises…read today’s TaxQuip.

And remember, you can find answers to all kinds of questions about employees vs independent contractors and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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One thought on “Employee or Contractor

  1. Michael says:

    I filed a 1040x for 2011 tax year adding the earned income credit and child tax credit. I already received my refund from the 1040, which included the American Opportunity Credit. The IRS withheld the added refund from the 1040x because if my wife’s student loan debt (since then we have been paying the loan). I’m trying to file 8379 because my wife only made $250 that tax year. Do I include all tax credits on line 17 on form 8379, or just the ones I added on the 1040x, and how do I divide them? I do live in California, a community property State

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