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Updated: January 11, 2024
If you’ve reviewed the guidance and are still uncertain whether certain workers should be receiving a W-2 or a 1099-NEC — a decision based on whether they are classified as an employee or an independent contractor — you are in luck. The IRS has Form SS-8 to help.
It’s used to help determine the status of a current worker for federal employment taxes and income tax withholding as either an employee, or as an independent contractor.
Note: Form SS-8 was last revised in May of 2014, and does not reference the new Form 1099-NEC, though the criteria of eligibility is the same. Keep in mind that the determination from an SS-8 does not decide your workers’ status at a state level, only at the federal level. In addition, filing a Form SS-8 will not change the due date for your tax return, so if you are unsure of your worker’s status, you may want to file Form SS-8 early so you have the answer in time to file your taxes. If you don’t have a determination before the tax deadline, file your tax return anyways and file an amended return later (if necessary).
Just a quick note here about the term “firm” as it relates to the IRS, and specifically as it relates to Form SS-8. A firm is considered “any individual, business enterprise, organization, state, or other entity for which a worker has performed services. The firm may or may not have paid the worker directly for these services.”
Form SS-8 is an IRS form that is used to determine a worker’s employment status for purposes of income and employment tax withholdings. Businesses should consider filing an SS-8 if they’re unsure if the worker they hired is classified as an employee or an independent contractor.
Form SS-8 is titled “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” That might seem like a bit of a mouthful, but the form is easier to understand than it sounds. Basically, Form SS-8 is used to ask the IRS for an official determination of a worker’s employment status.
This form is filed when a business is unsure if one or more of their workers should be classified as an employee or an independent contractor. This is an important question because it will determine many of the business’ potential employer responsibilities, such as health insurance, retirement benefits, etc.
Also, if the worker is an employee, they are subject to employment and income tax withholdings, but if they’re an independent contractor, then they are not subject to withholdings. Filing Form SS-8 will clarify this issue and allow you to classify the worker(s) in question correctly.
While you are not required to file Form SS-8, you are required to properly classify and report all employees and independent contractors, using Form W-2 for employees, and Form 1099 for contractors. If you’re unsure of how to classify one or more workers, then it may be wise to file form SS-8 with the IRS to get an official determination of the worker’s classification.
In general, the IRS wants workers to be classified the same as other workers doing similar tasks. For example, if a restaurant typically classifies cooks as employees, then the IRS wants newly-hired cooks to be classified as employees too. If they typically classify cooks as contractors, then the IRS wants newly-hired cooks to be classified as contractors too. And while no one never recommends attempting to circumvent the IRS, it’s worth keeping in mind that filing Form SS-8 could open up your business to additional — and potentially unwanted — scrutiny over your classification of employees vs. contractors.
Before we get into the specifics, the first thing you’ll want to do is download a copy of Form SS-8 and take a few moments to review it.
The form will help you make an accurate determination of your worker’s status for tax purposes. Send it to the IRS once completed, and they will use the information provided to make a formal determination of the worker’s status.
You’ll also need:
In addition to fields you’ll fill in, the IRS wants to make sure employers know that:
This section collects general information about your firm and your worker’s relationship to the firm. You’ll need to answer:
In addition, include details of any current or past litigation regarding the worker’s status. If no W-2 or 1099-NEC was issued, include information on the total compensation the worker received.
In this section, the IRS wants to understand the level of involvement or independence of the worker. Generally, the more independent a worker is, the more likely they are to be considered a contractor. You’ll need to tell them:
In this section, the IRS asks how financially invested the worker is in your business and vice versa. Who carries the brunt of the financial risk? Who buys supplies? Who determines prices for the customers?
Here are the questions you’ll need to answer:
Now the IRS will ask about benefits, noncompete agreements, work instructions, and terms for termination. Things you’ll need to address:
At this point, unless your worker is a salesperson or providing a service directly to customers, you will skip over Section V and sign the form.
If you are working with a salesperson or someone who delivers services directly to customers, answer the questions in Section V:
Once completed, you’ll need to file the Form with the IRS. Don’t forget to sign and date.
Just a few notes on how to file Form SS-8 once you’ve completed it:
It should be mailed to:
Internal Revenue Service
SS-8 Determinations
PO Box 630, Stop 631
Holtsville NY 11742-0630
Once you complete the form, you’ll wait to hear from Uncle Sam on the status of your request.
After you file form SS-8, the IRS will review the form and come to a determination of the worker’s employment status. They will then send you a letter detailing their determination, and you can begin treating the worker as either an employee or an independent contractor.
If they are determined to be an employee, you’ll need to adhere to all employment laws, including withholding the appropriate income and employment taxes, offering legally required employment benefits, and insuring the worker appropriately. If they are determined to be a contractor, you do not need to withhold employment and income taxes or offer employment benefits, but you may still be interested in insuring them or their work, depending on their responsibilities.
Once their status has been determined, it may be worth using a reputable payroll software to make managing the worker’s employment or contractor relationship easy and stress-free.
The IRS’s processing times can vary significantly, but the IRS website states that it can take “at least 6 months to receive an IRS decision.” Six months is a long time, so if you need to file Form SS-8, make sure you file it as early as possible.
If you have not received a determination before you file your tax return, the IRS says to file the return anyways. If their decision contradicts what your tax return said, they require you to file an amended tax return to report the difference. If their decision aligns with your tax return, then no further action needs to be taken.
Since implementing OnPay as our payroll software, we have found it to be an incredible value. It saves countless hours of manual payroll entry and time on tax forms, making it simple to provide employees with quick and easy direct deposit. The report function also helps us budget more effectively. I could not be happier with OnPay!
— Tyler McCardell, Wakefield EMS
A Form SS-8 determination is the IRS’s decision related to the employment status of one or more of your workers. Generally, they will be determined to be either an employee or an independent contractor.
Once the IRS makes an SS-8 determination, your treatment of the worker(s) should reflect the IRS’s decision. You should only consider changing the worker’s employment status if there is a significant change either in the nature or scope of their responsibilities, or in their relationship with you as their employer. If this happens, you can file another Form SS-8 to get a new determination, or you can treat them the same way that you treat other workers with similar responsibilities.
Whether you’re hiring your first employee or contractor, or your thousandth, employment questions will always come up. If you need help understanding whether a worker should be treated as an employee or a contractor, filing Form SS-8 can help.
If you want more information on Form SS-8, or need help filing it, visit the IRS website or consult your CPA or tax advisor.
This article is for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for formal consultation.