IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, is a form the IRS uses to determine if a worker is an employee or an independent contractor.
Why is Form SS-8 important?
Misclassifying a worker as a contractor when they should be an employee is a common mistake businesses make.
- An employee is a worker who is paid via payroll. As an employer, you’re responsible for paying half of your employee’s FICA payroll taxes and withholding income tax from their paycheck. You also must follow federal and state labor laws, like overtime pay and minimum wage laws. The IRS classifies a worker as an employee if you have the right to control what they will do and how it will be done.
- An independent contractor is a worker who is not paid through payroll. A contractor is responsible for paying all of their taxes themselves. You don’t pay employment taxes or withhold income tax from their payments.
So, why is it important to classify your workers correctly when you first hire them? Because if your worker is classified as a contractor when they should be an employee, you could wind up owing them unpaid wages and owing the IRS back payroll taxes and penalties.
On January 1, 2020, California’s Assembly Bill 5 (AB5) went into effect. AB5 makes it even harder to classify workers in California as contractors. Workers must pass all criteria in the ABC Test in order to be classified as contractors. Even if you don’t live in California, it’s important to correctly classify your workers as more and more states come out with their own AB5 laws.
Isn’t it obvious if a worker is an employee or a contractor? Not really.
There are a lot of factors to consider when classifying a worker, and often your specific situation won’t be black and white. That’s where Form SS-8 comes in. You can use Form SS-8 to ask the IRS to determine your worker’s classification for you. That way, you know that you haven’t misclassified your worker and won’t end up owing back payroll taxes.
Who needs to fill it out?
Form SS-8 can be completed by you, the employer hiring the worker, or by the worker themselves. This is important because if your worker is unhappy with their classification, they can initiate an investigation and determination with the IRS.
Regardless of who files the initial Form SS-8, both parties are asked to complete the form. If you submit Form SS-8 first, your worker will be notified and asked to fill out the form (and vice versa).
How do I fill out Form SS-8?
Here are some tips for filling out Form SS-8:
- Answer all the questions on the form in as much detail as possible. If you need more space, attach additional sheets with the question number clearly identified. Write your business’s name and Employer Identification Number (EIN) at the top of every extra sheet.
- Provide information about the entire time the worker worked for you, not just the current fiscal year. The IRS makes its determination based on the whole relationship.
- If there have been significant changes to your relationship with the worker, include that information.
- If you don’t know the answer to a question, write “Unknown” or “Does not apply.”
Name of firm (or person) for whom the worker performed service: Put your business’s legal name. This is the name that you use on government forms. If you’re a sole proprietor, put your name here.
Firm’s mailing address: Put your business’s mailing address. This is where the IRS will send the determination letter.
Trade name: If your business is operating under a name other than its legal name, enter that name here. A trade name is also called a “fictitious name” or “doing business as” (DBA) name.
Firm’s email address: Enter your email address.
Firm’s fax number: If you have a fax machine, enter the number here.
Firm’s website: Put your website’s URL.
Firm’s telephone number: Enter your business’s telephone number with the area code.
Firm’s Employer Identification Number: Enter your federal EIN here.
Most of the information in this section can be found on your worker’s W-9 form or W-4 form. If you’re missing information about the worker, leave the field blank.
Worker’s name: Enter your worker’s full, legal name.
Worker’s mailing address: Enter the address you have on file for your worker.
Worker’s daytime telephone number: Put your worker’s daytime phone number.
Worker’s email address: Enter your worker’s email address.
Worker’s alternate telephone number: If your worker has a secondary phone number, put that here.
Worker’s fax number: If your worker has a fax machine, put their fax number here.
Worker’s Social Security number: Put your worker’s Social Security number here. Their Social Security number will be on their W-4 and may be on their W-9.
Worker’s Employer Identification Number: If your worker has their own EIN, put that number here.
Note: If your worker is paid by someone other than your business, enter that business or person’s contact information here. For example, if you subcontract the worker and submit their invoices to another business for payment, you would list that business’s information here.
Disclosure of Information: This disclosure is letting you know that the information you share on Form SS-8 may be disclosed to the other parties listed on the form, including the worker. By submitting the form, you acknowledge that the information may be shared. There’s no way to opt out of having the information disclosed to other parties.
Part I: General Information
- Check “firm” if you’re a business filling out the form. Then, enter the beginning and ending date that the worker performed services for you. If there’s no ending date, write current or N/A. The beginning date should be the very first time you hired the worker, even if it’s not in the current fiscal year.
- Briefly explain why you’re filling out the form. If you received a notification from the IRS that a worker filed Form SS-8, indicate that here.
- Enter how many other workers have or are currently performing a similar service. For example, if your worker is performing writing services and you have three other contracted writers, you’ll write “3” here.
- Check the box that best describes how the worker started working for you.
- This question is a four-for-one! Let’s break it down:
- Attach copies of supporting documentation. Attach any documentation you have about the worker that supports their current classification. Examples are:
- Independent contractor agreements
- Business cards from the contractor
- Invoices in the name of the contractor
- Promotional materials of the contractor
- Website of the contractor
- Forms W-2 or 1099-MISC that you filed for the worker
- Any previous IRS rulings or notifications pertaining to the worker
- Add information about current or past litigation about the worker’s status. If this isn’t your first time defending the worker’s classification, include documentation from previous cases.
- Enter the amount of income earned for the year. If you did not file a W-2 or 1099-MISC for the worker, enter the total paid to the worker for each year they worked for you.
- Explanation of issuing both Form W-2 and 1099-MISC: If you issued both a W-2 and 1099-MISC for the worker, explain why they received both. Generally, a worker should receive one or the other.
- Attach copies of supporting documentation. Attach any documentation you have about the worker that supports their current classification. Examples are:
- Describe what your business does and the products or services that you sell.
- If the worker has been paid by more than one entity due to the sale of a business, merger, acquisition, or reorganization, list the previous owner’s information here. You’ll include:
- Former entity’s tax ID number
- Reason for the change
- Date of the change
- Describe what the worker does for you and their current job title and job description.
- Explain your reason for classifying the worker the way you have. Why did you choose to classify them as a contractor over an employee—or vice versa?
- If your worker previously worked for you performing another service, check “Yes.” Then list the dates of the service and the differences between their current and previous services. For example, if your contracted writer used to perform graphic design services, you would check “Yes” and explain how their design services are different from their writing services.
- If you and your worker had a written agreement (such as a contract detailing the scope of work), attach it to Form SS-8. Then describe the terms and conditions of the agreement.
Part II: Behavioral Control
Behavioral control is an important part of determining if a worker is a contractor or employee. The more control you have over what the worker does and how, the more likely they are to be classified as an employee. Examples of behavioral control are:
- Training the worker to do the work in a particular way
- Telling the worker how to perform the work or what order to perform their tasks
- Requiring the worker to work specific hours or schedule
- Requiring the worker to attend meetings or submit reports
- Did you or someone at your business train or tell the worker how to do their job? If so, list the name and titles of each person who trained and instructed the worker.
- Explain how the worker receives their work assignments—such as email, a weekly phone call or an in-person meeting—and who gives them their duties. Include that person’s name and title.
- Explain who decides how the worker does their job. For example, if you give your worker a step-by-step list of the tasks that they need to do, then you decide how the worker does their job. On the other hand, if the worker is entirely autonomous when they perform the service, then they decide.
- Describe what happens if the worker encounters a problem. Are they expected to handle it on their own? Or do they contact you to resolve the issue?
- If you require your worker to submit reports, explain what type of information they must send and the frequency. Also, attach examples of the worker’s reports.
- Describe your worker’s daily schedule. If your worker has set hours or days of the week that they work, include that here.
- List all the locations where the worker works. If the worker works at multiple locations (such as your business’s office and their own home), list the percentage of time the worker spends at each location.
- If you require that the worker attends meetings, describe the type of meeting and the frequency. If there’s a penalty for not attending a meeting, explain the penalty here.
- If you require the worker to perform the services themselves? Then check “Yes.” If your worker is allowed to outsource all or part of the services, then check “No.”
- If your worker is unable to perform the service themselves, or they need additional help, who is responsible for hiring extra help? List the name and title of that person.
- If your worker is responsible for hiring additional help, do you, or someone at your business, approve the hire? If so, check “Yes” and list the name and title of the person who approves the hire.
- List the name and title of the person who is responsible for paying for extra help.
- If the worker is responsible for paying for additional help, do you reimburse them? If so, list the name and title of the person who reimburses the worker.
Part III: Financial Control
Like behavioral control, the more financial control you have over the worker, the more likely it is that they’re an employee. Examples of financial control include:
- Requiring that the worker use materials and equipment supplied by your business
- Determining the type of payment the worker received and how they are paid
- Requiring the worker to adhere to your payment schedule
- Reimbursing the worker for costs associated with the work performed for your business
- List the supplies, equipment, and materials that each party provides.
- Firm: List materials, supplies, and equipment that you give to the worker to perform their services.
- The worker: Describe the personal property or equipment the worker provides, such as their own laptop or cellphone.
- Other party: If another party provides materials and equipment to the worker, list those here.
- Check “Yes” if the worker leases equipment, space, or a facility to perform the service. If you check “Yes,” describe the terms of the lease and attach a copy of the contract.
- Describe the expenses the worker incurs to perform services for your business.
- If you reimburse the worker for their expenses, list the expenses your business repays and, if applicable, the costs another party reimburses.
- Check the type of pay your worker receives. If the worker is paid via commission and guaranteed a minimum amount, enter that amount.
- Do you allow your worker to take a pay advance? If so, check “Yes” and describe how often they can take an advance. Also, explain if there are any restrictions.
- Check the box of who your customer pays when they purchase your product or service. If the customer pays the worker, do you require the worker to give you the total amount paid? If not, explain why.
- Check “Yes” if your business has workers’ compensation insurance coverage for the worker.
- Describe any economic or financial risk the worker could incur performing the service. For example, if you hire a photographer to shoot your events, they risk damaging their equipment or having it stolen.
- Does the worker decide how much they get paid? If so, check “Yes.” If not, list the name and title of the person who makes that decision.
Part IV: Relationship of the Worker and Firm
The type and permanency of the relationship between your business and the worker also determines the worker’s classification. If the worker performs work that relates the primary function of your business (and how you make money), then they are likely an employee. For example, if you run a fitness studio and hire a worker to teach fitness classes, then their work relates directly to your core operations.
How long the worker is expected to work for you also impacts their classification. If you hire a worker for a short term project and they offer the same skills to the public, they are likely a contractor. But, if you hire a worker indefinitely and they are either unable to work for others during this time or you prohibit them from doing so, they are an employee.
- Check all the benefits that your business provides to the worker.
- If you or your worker can terminate your relationship without liability or penalty, check “Yes.” If not, explain the liability or penalty or terms of termination.
- Check “Yes” if the worker provided the same services to others during the period they worked for you. If you checked “Yes,” on the next line, check “Yes” if your business requires that they get approval to work for others.
- If your business prohibits the worker from working with other companies or competing with your business while they’re working for you, describe the conditions. Also, attach documentation of this agreement.
- Check “Yes” if the worker is part of a union.
- Describe how the worker advertises their services. Attach documentation like their business cards, promotional materials, screenshots of their website, and directory listings.
- If your worker assembles or manufactures a product at home, explain who gives them the materials, instructions, or patterns. If it’s someone at your business, list the person’s name and title.
- Explain what the worker does with the completed product.
- Describe how you discuss the worker with your customers. What title do you give them? Does the worker perform their services under your business’s name or their own?
- If the worker no longer works for you, explain how and why the relationship ended.
Part V: For Service Providers or Salespersons
You only need to complete this section if the worker is a salesperson or provides services directly to your customers.
- If your worker is responsible for soliciting new customers, describe what role they play and their responsibilities.
- List the name and title of the person who provides leads and prospects to the worker.
- If you require your worker to submit reports about leads and potential customers, describe the reporting requirements and frequency.
- If you have any special conditions the worker must meet when making sales, describe them here.
- Check “Yes” if your business must approve orders and sales.
- List the name and title of the person who determines the worker’s territory.
- Check “Yes” if your worker must pay to work with customers in their territory. Then, explain who the worker paid and how much.
- List all the locations where the worker sells the product.
- List the products or services the worker sells. If the worker sells more than one class of product (like home supplies and beauty products), put the main type of product that they sell.
- Check “Yes” if the worker sells life insurance full time.
- Check “Yes” if the worker sells other types of insurance for your business.
- Does your worker take orders from wholesalers, retailers, contractors, hotels, restaurants, and similar types of businesses? If so, enter the percentage of time they spend soliciting orders.
- Check “Yes” if the products your worker sells are purchased by customers for resale or to use in their own business. If you checked “Yes,” describe the merchandise and whether it’s equipment installed at the customer’s business.
Sign Here: Sign your name and then print your name below your signature. Also, include your title and the date.
Where do I file Form SS-8?
Form SS-8 must be filed by mail. Check the Form SS-8 Instructions for the filing addresses.
There is no fee to file Form SS-8.
What happens after I file the form?
After you file Form SS-8, the IRS opens its investigation using the information you and your worker provide.
Investigations typically take several months, and you could wait up to six months for your determination.
When the IRS makes its decision, it will send a notification to you and the worker. Typically you’ll receive one of two letters:
- Determination letter: This letter is a formal determination of the worker’s classification and legally binding. If you receive a determination letter asking you to change the worker’s classification, then you’re legally obligated to do so.
- Information letter: This letter is not a formal determination of the worker’s classification and is an advisory letter. It’s not legally binding but can be used by the worker to fulfill their federal tax obligations.
What happens if the IRS rules my independent contractor an employee?
If your contractor is indeed an employee, you could be liable for back wages, payroll taxes, and penalties.
If you can show reasonable cause for treating an employee as a contractor, then you can file for Section 530 relief. If granted relief, your employment taxes and penalties will be waived. To qualify for Section 530 relief, you must meet all three of the special requirements. You can learn more about Section 530 relief here.
When they receive their determination letter, if they should be classified as an employee, your worker will be required to file Form 8919, Uncollected Social Security and Medicare Tax on Wages. Form 8919 reports how much Social Security and Medicare tax that you, the employer, should have paid to the worker while they were misclassified.
What happens if one of my workers files the form with the IRS? What do I have to do?
If a worker files Form SS-8, you’ll receive a notification from the IRS requesting that you complete Form SS-8. The notification discloses who filed the form and may even include some of the information provided on the form.
If you don’t respond to the notification, the IRS will still classify the worker. But, their decision will be based on the information the worker provided. So it’s in your best interest to respond to the request and complete Form SS-8.
It’s easy to panic when you receive a notification from the IRS. Just keep in mind that the notification is not an audit. It’s an investigation into the relationship between your business and the worker. Also, the investigation doesn’t include any other workers that you hire. It’s strictly between you and the worker who filed Form SS-8.
We know Form SS-8 is a lot of work to fill out. But remember, taking the time to complete it when you first hire a worker could save you lots of headaches down the road.