The Pros and Cons of Filing Form SS-8 — What You Need to Know Before Asking the IRS to Determine a Worker’s Status

Classifying those you employ as independent contractors — rather than employees — may save your company money and offer other benefits, too. However, the IRS has their eyes peeled, watching for companies who do this improperly in order to bypass taxes and employee benefit obligations.

Your company can check on a particular worker’s classification, according to the IRS, by filing optional IRS Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” Traditionally, The IRS will automatically classify workers as employees, and filing this form could tip off the IRS that your business has classification problems — and even unintentionally activate an employment tax audit.

Contractor vs. employee status

When a business classifies a worker as an independent contractor, instead of an employee, several advantages ensue. For instance, the business is no longer obligated to pay payroll taxes or benefits, withhold taxes, or observe most wage and hour laws.

The drawback is that, should the IRS conclude that you improperly classified your workers as independent contractors, you are liable to be subject to significant back taxes, interest and penalties. For this reason, filing IRS Form SS-8 for an up-front determination is so enticing.

Due to the inherent risks from filing the form, the better alternative would be to treat independent contractors properly in order to meet the tax code laws. First and foremost, avoid controlling how the worker carries out his or her tasks, confirm that you are not the worker’s sole client, supply Form 1099, and absolutely do not treat the worker as your employee.

Be prepared for workers filing the form

Any worker can file Form SS-8 and inquire as to his or her status. Independent contractors who are disgruntled could choose to file because they believe they are entitled to health, retirement and other employee benefits and are hoping to do away with self-employment tax liabilities.

Once a worker has filed Form SS-8, the business will receive a letter from the IRS. It names the worker and asks the business to fill out a blank Form SS-8, included with the letter. The business then returns the completed form to the IRS, which will deliver a classification determination. This Form SS-8 determination process does not constitute an official IRS audit.

Passing IRS muster

You need not be alarmed if a worker files Form SS-8, as long as your business properly classifies workers as independent contractors. Before responding to the IRS, please call us at 949-860-9902 or click here and we will contact you. You will most likely be able to keep the worker classified as a contractor, with a proper response. We will also help you set up independent contractor associations that are IRS-approved.