What is Worker classification (employee or independent contractor)?
In short
Worker classification decides whether a worker is an employee, for whom the business withholds income tax and pays payroll taxes, or an independent contractor, who pays self-employment tax. The test is how much control the business has over the work.
Key takeaways
- The Internal Revenue Service looks at behavioral control, financial control and the relationship of the parties.
- Employees receive Form W-2; independent contractors receive Form 1099-NEC.
- Misclassifying employees can lead to back payroll taxes, penalties and interest.
Where it's tested
REG: Employee Benefits & Payroll Tax — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
An employer provides each employee with a $50 gift card at year end and a $50 holiday ham. How are these treated for the employees?