IRS Independent Contractor

IRS Independent Contractor

Independent Contractor Qualifications

Test for Independent Contractors

IRS Independent Contractor - Independent Contractors are defined by the IRS, as the people who contract to perform services for others, but don't have the legal status of employees. Businesses can save time, money and headaches by hiring Independent Contractors instead of employees.

IRS Independent Contractor

Independent Contractors may call themselves by a variety of names, such as freelancers, consultants, the self-employed, entrepreneurs or business owners it makes no difference in the eyes of the IRS.

Independent Contractor agreements: Using a written Independent Contract Agreement avoids later disputes by providing a written description of the services the IC is to perform, when they are to be performed and how much the Independent Contractor will be paid.

Qualifications of Independent Contractors

Most people who qualify as independent contractors follow their own trade, business or profession, they are in business for themselves. This is why they are called independent contractors. They earn their incomes from their own independent businesses instead of depending upon any one employer.

Examples of Independent Contractors are professionals with their own practices,doctors, lawyers and accountants. For example, dentists who have their own practices are independent business persons offering dental services to the public; although you pay your dentist or doctor for work, he or she is not your employee.

A worker does not have to be a professional, however, to be an Indedendent Contractor. A person you hire to paint your house can be in business for himself or herself and qualify as an IC.

IRS Independent Contractor - Common Law Test

  • can earn a profit or suffer a loss from the activity
  • is told where to work by the hiring firm
  • offers his or her services to the general public
  • can be fired by the hiring firm
  • furnishes the tools and materials needed to do the work
  • is paid by the job or by the hour
  • works for more than one firm at a time
  • has a continuing relationship with the hiring firm
  • invests in equipment and facilities
  • pays his or her own business and traveling expenses
  • has the right to quit without incurring liability
  • receives instructions from the hiring firm
  • is told in what sequence or order to work by the hiring firm
  • receives training from the hiring firm
  • performs the services personally
  • hires and pays assistants
  • sets his or her own working hours
  • works full-time for the hiring firm
  • provides regular oral or written progress reports to the hiring firm, or
  • provides services that are an integral part of the hiring firm's day-to-day operations.

What tests do agencies use to determine whether a worker is an employee or an independent contractor?

State workers' compensation, unemployment compensation and tax agencies use various tests to determine worker status. Many use the common law right of control test, but emphasize different factors than the IRS. Some use an economic reality test that focuses on whether a worker is economically dependent upon a hiring firm.

Many state unemployment compensation agencies use a special statutory test, also called the ABC test. This test focuses on just a few factors:

  • whether the hiring firm controls the worker on the job
  • whether the worker is operating an independent business, and
  • where the work is performed -- that is, where the hiring firm says or where the worker wants to work.

Independent Contractor IRS
Home | IRS Independent Contractor