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sections of the Employment Tax Regulations; namely,
sections 31.3121(d)-1, 31.3306(I), and 31.3401(c)-1, relating to the Federal
Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA),
and Federal income tax withholding, respectively. In general, it should be noted that section
3121(d)(2) of the Internal Revenue Code requires the application of the common
law rules in determining the employer-employee relationship. In determining
whether an individual is an employee under the common law rules, several
factors have been identified as indicating whether sufficient control is
present to establish an employer-employee relationship. These factors have been
developed based on an examination of cases and rulings considering whether an
individual is an employee. The degree of importance of each factor varies
depending on the occupation and the factual context in which services are
performed. See Rev. Rul. 87-41, 1987-1 C.B. 296, where some 20 factors have
been identified. These factors are not to be applied blindly. Rather, they are
to be used as an aid in determining whether direction and control exists. Although a variety of factors may be used to
analyze employment status for tax purposes, the regulations provide that
employer control over the manner in which the work is performed is probably the
most important. The test is either actual control by the employer or the right
to control. For further assistance regarding employment tax
issue, we suggests that the employment tax coordinator be contacted. After it has been determined that an examination of
the employee/independent contractor issue will be undertaken, section 530
should be addressed as early as practicable. Section 530(a)(1) of the Revenue Act of 1978
terminates an employer's liability for employment taxes under subtitle C, which
includes FICA, FUTA, and income tax withholding, any interest or penalties
attributable to the liability for employment taxes. Section 530 provides that,
for employment tax purposes, an individual will be deemed not to be an employee
unless the employer had no reasonable basis for treating the individual as an
employee. The purpose of section 530 is to shield employers who had a
reasonable basis for treating workers as independent contractors from employment
tax consequences arising from employment status reclassification by the Service. For an employer to be eligible for relief under
section 530: (1) all required
information returns must have 9-2 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Glossary |