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The IRS chief counsel has indicated how it is possible for an individual to be an employee and an independent contractor simultaneously.

Worker Can Be Employee and Contractor on Separate Projects

  • 1/23/2013

Worker Can Be Employee and Contractor on Separate Projects

In an information letter provided to a member of Congress on behalf of a constituent, the IRS chief counsel has indicated how it is possible for an individual to be an employee and an independent contractor simultaneously, for the same company, when working as a professional consultant on two separate consulting projects. The IRS chief counsel emphasized that the letter was for informational purposes only and did not constitute a ruling.

Background

Whether an individual is an employee under common law rules is a question of fact to be determined after considering the circumstances in a particular case. The IRS considers three aspects of control when determining whether a business employs a worker: behavioral controls, financial controls, and the relationship of the parties.

Behavioral controls, the chief counsel explained, are evidenced by facts that illustrate whether the service recipient has a right to direct or control how the worker performs the specific tasks for which he or she is hired. Financial controls are evidenced by facts that illustrate whether the service recipient has a right to direct or control the financial aspects of the worker’s activities. The relationship of the parties is generally evidenced by the parties’ agreements and actions with each other, including facts that show how they perceive their own relationship, and how they represent their relationship to others.

Analysis

The IRS chief counsel explained that where an individual provides services in two separate roles to the same business, the IRS examines the relationship between the worker and the business separately for each performance of services. The IRS looks at the behavioral controls, financial controls, and relationship of the parties. If an employer-employee relationship is found for services provided in only one of the worker’s roles, then those wages are subject to FICA and income tax withholding, chief counsel explained.

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