How Does the IRS Decide Who Is an IC?

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The IRS looks at a number of factors when determining whether a worker is an employee or an independent contractor. The agency is more likely to classify as an independent contractor a worker who:

  • can earn a profit or suffer a loss from the activity

  • furnishes the tools and materials needed to do the work

  • is paid by the job

  • works for more than one firm at a time

  • invests in equipment and facilities

  • pays his or her own business and traveling expenses

  • hires and pays assistants, and

  • sets his or her own working hours.

On the other hand, the IRS is more likely to classify as an employee a worker who:

  • can be fired at any time by the hiring firm

  • is paid by the hour

  • receives instructions from the hiring firm

  • receives training from the hiring firm

  • works full time for the hiring firm

  • receives employee benefits

  • has the right to quit without incurring liability, and

  • provides services that are an integral part of the hiring firm's day-to-day operations.

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