When working on a job for some business you can be classified as an employee or independent contractor. There are guidelines set by government that determines the proper classification. The classification determines what benefits you will receive, what type and how much tax you will need to pay and so on. That is why it is important that you pay close attention to your classification and take appropriate action if you are not classified correctly.
All misclassified workers miss out on benefits. There are serious consequences if you are misclassified as an independent contractor. It means that you will:
- Not be eligible for unemployment benefits as well as your employer would not have to pay for your unemployment insurance.
- Have to pay for all your Medicare and Social Security taxes from your own pocket. If you are an employee, your employer will pay half of these taxes for you.
- Not be eligible for healthcare coverage like and employee is under 2014’s Obamacare.
- Not have any of the workplace rights, which employees generally have, like overtime pay, rest breaks, sick pay, and right to minimum wage.
Employers are able to save a lot of money by classifying employees as independent contractors. This is why a lot of the employers do so, even when the workers are technically as defined by the law.
There are certain effective things you can do from your side when you feel like you are being misclassified as an independent contractor, even though you are treated like an employee.
- Talk to the Employer
The first thing to do is to talk to your employer and see if they can review your classification and reclassify you as an employee. You need to be clear that you feel you have been classified wrongly as an independent contractor. And lastly, you should receive an explanation regarding why your employer thinks you are not an employee but a contractor.
- Get the IRS Involved
If you have tried to talk to the employer but it does not work, you may consider contacting the IRS. Workers who feel they have been wrongly classified as contractors may request for IRS to ascertain their employment status for the federal tax purposes by filling IRS Form SS-8, which does not require any payment or fee.
In this form, you answer a range of questions regarding the nature of your job and the way your employer treats you in the office. Once the IRS gets your form, they will contact your employer to determine their version of facts. After that IRS will ascertain what your classification should be for the purposes of income tax and federal employment taxes withholding.
Some things to consider are first: the IRS’s decision would not be binding on the employer, and secondly, the IRS may reveal your identity to the employer, which may not go well with your employer.
Also, the decision taken by the IRS will be obligatory on the IRS, although, it is not compulsory on your employer. However, if an employer ignores the determination of the IRS, they can be in trouble.
- File the Tax Return with the IRS Form 8919
If you feel you have been wrongly classified as an independent contractor, by filling the IRS Form 8919, you can avoid paying more than 50% of these taxes. Through this form, your Medicare and Social Security taxes will be given back to you in your social security record.
- File Unemployment Insurance Claim
In case you have been laid off or fired by your employer, you can file the employment insurance claim with the state’s unemployment agency. The agency will investigate if you explain to them that you have been misclassified.
If the agency determines that you were an employee, you would be entitled to unemployment insurance plus your employer will be fined. Your employer will also have to pay back the insurance premiums.