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My daughter was employed while in college and now her

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My daughter was employed...

My daughter was employed while in college and now her employer has sent her a form asking her to agree that she was a contract employee. She never agreed to that when she took the job and does not know what that even means. I don't think she should complete the form and don't know what to do.

Submitted: 7 months ago.Category: Tax
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1/5/2018
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,795
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is***** will be assisting you. In brief, typically a contract employee is a self-employed person. Did your daughter complete a Form W4 or any other type of form when she started working? Was she paid cash or by check? Did she sign a written agreement or anything else?

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Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

How Does the IRS Decide a Worker's Status?

To help distinguish between employees and independent contractors, the IRS has set up three general criteria:

  • Behavioral Control
    If an employer trains and directs work, including hours of work, what tools or equipment to be used, specific tasks to be performed and how the work is to be done, the worker is likely an employee. If the worker can set his or her own hours and works with little or no direction or training, he or she is probably an independent contractor.
  • Financial Control
    This factor includes how the worker is paid, whether the worker may work for others at the same time, and whether the worker can incur a profit or loss. A worker who is paid a salary is restricted from working for others, and who does not participate in company profits or losses, is probably an employee.
  • Type of Relationship
    The presence of a specific contract may indicate an independent contractor, but this factor alone is not controlling. If the worker is entitled to benefits, this would indicate an employment relationship. Another factor would be the type of work the person does; if it is directly related to the company's core work, he or she is probably an employee. For example, a maintenance worker would not be doing 'company' work if he or she were working for a bank.

REFERENCE SOURCE:

https://www.thebalance.com/independent-contractor-or-employee-what-s-the-difference-397912

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Customer reply replied 7 months ago
She was paud via an online service. Shedid not sign anything or fill out a W4.
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

What type of work did she do? Was she a freelancer, which is a person who works as a writer, designer, performer, or the like, selling work or services by the hour, day, job, etc., rather than working on a regular salary basis for one employer.

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Customer reply replied 7 months ago
She sold jewelry at a stand on the river front. Same place every day for the same designer. She simply manned the stand and sold the product of her employer.
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

As there was no employee/employer relationship officially established, it sounds as though she could be classified as an independent contractor instead of an employee. Is the form that she is being asked to complete the Form W9? If so, this is an information form that the employer should have had your daughter complete before she even started working. The Form W9 form is an information form required pretty much for the purpose of obtaining a person's identification information, name, address and social security number and the form certifies that a person is eligible to work in the U.S. Still writing...

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Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

Your daughter is either considered an employee or self-employed? If she does not feel that she was a contractor, but an employee, she can ask the IRS to make that decision by completing the Form SS-8 (Determination of Worker Status Form).

Link to Form W8:

https://www.irs.gov/pub/irs-pdf/fss8.pdf

Either way, whether she was considered an employee or a contractor, the Form W9 should have been completed before she started working.

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Customer reply replied 7 months ago
It is a W9 and she is not comfortable signing it and doesn’t understand what it means to be an independent contractor. I will tell her to notify the employer that she will not submit the form and we will ask the IRS ti make the determination
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

If there was no taxes being withheld from her paycheck, this will also indicate that she was working as a contractor person. However, this does not mean that she should have been classified as a contractor. To avoid paying payroll taxes, some employers will intentionally misclassify employees as independent contractors.

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Again, an independent contractor is another term for a self-employed person. This means that the person is subject to self-employment taxes (Medicare and FICA taxes).

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Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

If she is not comfortable being classified as a contractor, she should not complete the Form W9 and submit the Form SS-8. If she completes the Form W9, and she earned $600 or more, the employer will likely issue a Form 1099-MISC to her instead of a Form W2. As an employee, she would receive a Form W2.

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Customer reply replied 7 months ago
I think that is what happened and she is now putting it back on my daughter who has no idea how to be self employed
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

The IRS defines an independent contractor as the following:

The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

General Information about the W9 form.

Anyone who did work for a company but was not an actual employee of that company is required to fill out W-9 federal income tax forms for every company for which they performed non-employee work. W-9 forms are known as “information reporting” federal income tax forms. If the company you performed work for is required to file any kind of tax return they must get your information. If your tax information is not already in their records, they will ask you to file a form W-9 to provide this info.

Who might be asked to fill out a form W-9? Freelancers, for one. Freelancers are brought in to perform work on projects that are short term. This involves work such as writing, research, or graphic design work. They aren’t needed full time, as the work will run out. Freelancers are required to fill out W-9 income tax forms.

Another group that uses the W-9 income tax forms to report information to clients is consultants. Consultants come in and advise a company on public relations, cost cutting, or personnel training, among other things. If you’ve consulted with a company, you are required to fill out W-9 income tax forms for each company you consulted with.

Other independent contractors, such as custodians, landscapers, or repair people must also fill out W-9 income tax forms. This is true even if the work was carried out over a significant period of time. Contractors working with a business for many years still turn in W-9 income tax forms.

These tax forms are also used to help the company avoid backup withholding from the checks they issue to you. As an independent contractor, you are responsible for paying your own taxes. Having a form W-9 on file for you allows companies to show the IRS that they do not owe payroll taxes on the money they paid you.

REFERENCE SOURCE:

https://www.irs.com/articles/fill-out-irs-tax-form-w-9

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