The 20 IRS Questions to Determine Contractor Status

The 20 IRS Questions to Determine Contractor Status :

The 20 IRS Questions to Determine Contractor Status :

1. Are you required to comply with instructions about when, where, and how the work is to be done?

2. Does your client provide you with training to enable you to perform a job in a particular method or manner?

3. Are the services you provide integrated into your client's business operation?

4. Must the services be rendered by you personally?

5. Do you have the capability to hire, supervise, or pay assistants to help you in performing the services under contract?

6. Is the relationship between you and the person or company you perform services for a continuing relationship?

7. Who sets the hours of work?

8. Are you required to devote your full time to the person or company you perform services for?

9. Is the work performed at the place of business of the potential employer?

10. Who directs the order or sequence in which the work must be done?

11. Are you required to provide regular written or oral reports to your client?

12. What is the method of payment hourly, commission or by the job? (Contingency and project milestone-based payments are the gold standard.)

13. Are your business and/or traveling expenses reimbursed?

14. Who furnishes tools and materials used in providing services?

15. Do you have a significant investment in facilities used to perform services? (The more substantial your investment, the better.)

16. Can you realize either a profit or a loss?

17. Can you work for a number of firms at the same time?

18. Do you make your services available to the general public? (It's a good idea to have a business listing in the phone book, for example.)

19. Are you subject to dismissal for reasons other than nonperformance of contract specifications? (Also, your client should provide at least a week's notice or end of a contract completion. At will termination makes you look like an employee.)

20. Can you terminate your relationship without incurring a liability for failure to complete a job? (Assuming you're working on a time-and-materials basis. If you're working on a project or milestone, basis, you are obligated to deliver on your commitments if you wish to be paid for your efforts.)

The answers are the ones that qualifies someone as a contractor not an employee. When working with a contractor, be sure they understand the distinctions and sign this document. The proper answer to be a contractor is in the parentheses above. Clearly the higher the number of correct questions, the better your chances of having a contractor classified as a contractor if either the contractor or the IRS challenge their status.

Sometimes states get involved in this process for unemployment insurance purposes of classification. They may not use these exact rules; but I have found their rules are quite similar once they start going through the process.

The 20 IRS Questions to Determine Contractor Status :

The 20 IRS Questions to Determine Contractor Status

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