Applying for Worker Status Determination on Form SS-8
IRS Form SS-8 is used to request a determination from the IRS on the status of workers, to determine if they are employees or independent contractors.
Employee vs. Independent Contractor - What's the Difference?
The IRS considers two types of workers:
Independent contractors, who provide services to other businesses and who are considered self-employed (in business for themselves), and
Employees (also called common-law employees), who perform services for your company and you can control what will be done and how it will be done.
The IRS has a set of rules they use to show evidence of control and independence, in three categories: behavioral, financial, and type of relationship.
This IRS article on Understanding Employee vs. Contractor Designation gives some details on the three general rules. But it's important to understand that whether a worker is an employee or independent contractor is decided by the IRS depending on the facts for each case.
Why is Worker Classification Important?
The key difference between employees and independent contractors, from a tax standpoint, is whether a business withholds income tax and Social Security/Medicare tax from payments and if the employer pays the unemployment tax for these workers.
Businesses must withhold income taxes and FICA taxes (Social Security/Medicare tax) from employee pay, but they don't have to withhold from payments to independent contractors because these individuals are in business for themselves.
If your business classifies a worker as an independent contractor and you don't withhold these employment taxes, you can be liable for the employment taxes for these individuals. Usually, this misclassification happens when workers are classified as independent contractors, but the workers are actually determined to be employees.
How Form SS-8 Works
The IRS The IRS reviews these instances of possible misclassification on a case-by-case basis and issues a determination.
Either a business or a worker may file Form SS-8 to request a determination of the status of a worker. You can only request a Form SS-8 determination to resolve federal tax matters. You can't request a determination for proposed transactions or hypothetical situations.
Information Needed to Determine Worker Status
The key areas used to determine worker status are behavioral control, financial control, and type of relationship. Here is a list of the key information you will need to compile in order to complete this form:
- How did the worker obtain the job (bid, application, employment agency, or other)
- Description of the work done by the worker
- Explanation of why you believe the worker is an employee or independent contractor
- Attach a copy of any written agreement
- Specific questions to determine behavioral control; for example:
- Training and instructions
- Work assignments
- Problems and complaints
- Daily routine
- Substitutes or helpers
- Specific questions to determine financial control; for example:
- Who provides supplies and materials
- Who provides leased equipment
- Are worker expenses reimbursed
- Type of pay received (salary, commission, hourly wage, piecework, lump sum, or other
- Drawing/advance account
- Who does the customer pay
- Economic loss/financial risk for worker
- Specific questions to determine the relationship between worker and firm; for example:
- Benefits available to worker, like paid vacations, sick pay, pensions, bonuses, insurance
- Penalties for termination of relationship
- Presence of non-compete agreement
- Is worker in a union
- Who provides materials, patterns, instructions
- How the firm represents the worker to its customers.
The Process for Form SS-8
A worker or employer can file Form SS-8 and receive a determination from the IRS. When the IRS receives the request, it will begin research and may come back to the firm and worker for further information. At the end of the process (which might take up to six months), the IRS will either (a) issue a determination letter, which is binding on the IRS, or (b) issue an informational letter, which is advisory but not binding.
Where to File Form SS-8
Send the completed and sign Form SS-8 to:
Internal Revenue Service
PO Box 630, Stop 631
Holtsville NY 11742-0630.
Two Options for Relief from Misclassification Payments
Section 530 Relief
If the IRS determines that a business should have been treating workers as employees rather than independent contractors, there is a possible way to avoid paying back employment taxes. The IRS has set up a process under Section 530 of the Internal Revenue Code with three criteria for an exemption from this payment. The three criteria are:
- Reporting Consistency,
- Substantive Consistency, and
- Reasonable Basis.
Section 530 relief is a separate process from an SS-8 determination.
Voluntary Classification Settlement Program
The IRS also has a voluntary program called the Voluntary Classification Settlement Program (VCSP) that gives businesses an opportunity to reclassify workers as employees with partial relief from federal employment taxes. The business must meet certain eligibility requirements, file an application, and enter into a closing agreement with the IRS.
IRS. "Independent Contractor (Self-Employed) or Employee?" Accessed May 29, 2020.
IRS. "Employee (Common-Law Employee)." Accessed May 29, 2020.
IRS. "Understanding Employee vs. Contractor Designation." Accessed May 29, 2020.
IRS. "Instructions for Form SS-8." Page 1. Accessed May 29, 2020.
IRS. "Form SS-8. Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding." Accessed May 29, 2020.
IRS. "Instructions for Form SS-8." Page 2. Accessed May 29, 2020.
IRS. "Publication 1976. "Do you Qualify for Relief under Section 530?" Accessed May 29, 2020.