In a recently released IRS Information Letter, the IRS addressed an individual taxpayer worker classification inquiry regarding performing work as an independent contractor rather than as an employee under close and ongoing supervision [IRS Information Letter 2023-0012, 08/30/2023, released 11/17/2023].

Employee defined.

Under Code Sec. 3121(d)(2), the term “employee” includes any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. Similar guidance applies to FICA tax (Reg. §31.3121(d)-1) and federal income tax withholding (Reg. §31.3401(c)-1).

Common law rules.

To determine whether a worker is an employee or independent contractor under common law, the level of control or autonomy must be considered. Relevant factors fall under three categories:

• Behavioral control. Factors to be considered for behavior control would be whether the employer has control or has the right to control what the worker does and how the work is performed. Factors may include the provision of training, the issuance of instruction, or the completion of an evaluation.
• Financial control. Factors to be considered for financial control would be whether or not the business directs or control the financial and business aspects of the worker’s job. Factors may include the method of payment, the worker’s opportunity for profit or loss, and whether a worker has made a significant investment, incurred unreimbursed...

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