Being misclassified as an independent contractor happens all over the United States as employers try to reduce their tax costs by classifying their workers as independent contractors instead of employees. If an employer classifies a worker as an employee, they have to pay half of the employee’s social security and Medicare taxes. On the other hand, if the employer classifies a worker as an independent contractor, the employer does not have to pay any Social Security and Medicare taxes. Instead, the independent contractor has to pay all their Social Security and Medicare taxes out of their own pocket every year. The independent contractor is also not eligible for unemployment benefits, health benefits, and worker’s compensation benefits.
If you are classified as an independent contractor your employer cannot dictate how many hours you take for lunch or how many days you take on vacation. The general rule when an employer hires an independent contractor is that they can only control or direct the results of the work that is done. They cannot control what will be done and how it will be done.
If you perform services that can be controlled by an employer you are not an independent contractor, you are an employee and are entitled to a W-2. If your employer controls how long your lunch is, how many hours a day you have to come into the office, how many sick days or vacations you have, how the work is done, when the work is done, and where the work is done then you are being misclassified as an independent contractor.
Can I file a form with the IRS if I Believe that I have been Improperly Classified as an Independent Contractor?
Workers who believe that they have been improperly classified as an independent contractor by an employer can use IRS Form 8919, Uncollected Social Security and Medicare Tax on Wages, to figure out and report the share of uncollected taxes due on their compensation. However, before being able to submit this IRS form you must file an SS-8 form, receive correspondence from the IRS that states that you are an employee, or receive a W-2 and a 1099-MISC from the same organization.
A worker can file Form SS-8 to request a determination from the IRS regarding their status as an independent contractor. After receiving a completed and signed SS-8 form the IRS will determine whether you are an independent contractor or an employee. When filing Form SS-8 you should attach copies of all supporting documents that you believe infer that you are an employee and not an independent contractor. You can also describe your concerns and reason for filing the form. If the IRS determines that you are an independent contractor, you may file IRS Form 8919, which will determine how much Social Security and Medicare Tax was not withheld from your paycheck while you were an independent contractor. Filing Form 8919 allows your Social Security earning to be credit to your Social Security record.
What Happens when an Employer Misclassifies an Employee as an Independent Contractor?
If the DOL suspects that your independent contractor misclassification was intentional by the employer either because they did not want to pay taxes or did not want to provide health benefits, there are various penalties that an employer will be subject to. If the misclassification is intentional the employer may be charged with one year in prison, up to $1,000 in criminal penalties per misclassified worker, 20% of all employee’s paid wages, and 100% of Social Security and Medicare contributions for the employer and employee.
On the other hand, if the misclassification is unintentional, an employer may be charged with a $50.00 fee for each W-2 that was not filed, 40% of the employee’s Social Security and Medicare contributions, 100% of the employer’s Social Security and Medicare contributions, and 1.5% of the employee’s wages, plus interest.
As an employee, if you have been misclassified as an independent contractor, you have options for resolution. You may contact the U.S. Department of Labor Wage and Hour division if during your independent contractor classification, you were paid less than minimum wage or the employer failed to pay you overtime. You may also contact your state department and report the misclassification or file Form SS-8 so that the IRS can determine your worker status. Lastly, you have the option of seeking legal counsel regarding your misclassification as an independent contractor.
