Lately, the line between employees and independent contractors has become murky due to the COVID-19 pandemic, changing economic environment, technological improvements and recent legislative actions. It is vital clients know the difference between the two.
In response to the confusion, the IRS identifies three categories of evidence in Publication 15-A that are relevant in determining whether a worker is an employee or an independent contractor. The IRS looks at behavioral control, financial control and the type of relationship of the parties.
Why do the clarifications matter so much? In a nutshell, workers who are employees receive a Form W-2. When it comes to contractors, businesses do not withhold income tax and would not be liable for many benefit expenses. The reduction is substantial.