IRS Determining "contractor vs employee"?

Question

I worked for a company for 15 months as an Independent Contractor. No taxes were taken out and no insurance was offered.

In that time, I was treated and represented to everyone inside and outside of the company as an employee. I even had managerial responsibilities. Reading up on the issue, I was definitely 'a common-law employee'

I'm looking to hear from others who have successfully challenged their classification - from Contractor to Employees -by filling out the IRS SS-8 form.

How long did it take to resolve the issue? How long did it take the IRS to render a verdict? What were your next steps after the IRS ruled in your favor? Was other legal remedies considered to right this wrong?

What can I expect?

Thank You

Answer 1

I think this is one you chalk up to experience. If you did not know the tax consequences attendant on status as an independent contractor, shame on you for not exploring the question sooner. You had 15 months!

In general I would prefer to be an independent contractor, the tax benefits are better, especially the way deductions for expenses are determined for contractors versus employees. But you have to take into consideration the fact that you receive no employee benefits and must cover your taxes from your gross income. Adjust your rates accordingly to provide for the things you don't get as an employee.

That said, if the IRS does determine you were an employee you would be entitled to a refund of the self-employment taxes you paid if the determination is made and your claim for refund is filed within the statutory time frame (generally, three years from the due date of the subject return).

You might precipitate that determination by filing an amended return (Form 1040X). In that return claim a refund of the self-employment taxes and give a detailed explanation of why you think you were an employee and not an independent contractor. Do a little research at www.irs.gov for information on how the IRS looks at the question and tailor your explanation accordingly.

If you'll feeling real aggressive you could also claim a refund of the income taxes you paid claiming that what you were paid should be considered as your net income after withholding for income, FICA, and Medicare taxes. And, since you were an employee, payment of those taxes were the responsibility of the employer.

Have fun! You could pull it off with determination and perserverance.

Answer 2

Well, if the company issues you a 1099 with your social security number on it, you've got a quarterly tax payment due. Also, there will be formulas about the half-year tax payment, the third quarter payment and from all that you can calculate whether you have taxes owed on the next tax filing or (ha, ha, ha) a refund. The 1099 is all they have to issue and they have to have your SS number. Contractors usually signed a contract. You don't mention those terms. But, all in all, the IRS is basically a tax office.

Answer 3

The IRS likes people to be employees. That way there is withholding as opposed to quarterly estimated taxes that never seem to get paid. The IRS has some helpful info.