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. 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, file Form SS-8 early. You want the answer in time to file your taxes.
Let’s look at the details of the form.
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 Introduction Section
- Form SS-8 PDF (Rev. May, 2014)
- Your company information including address, phone, email, and Employer Identification Number (EIN)
- Your worker’s information including address, phone, email, and Social Security Number (SSN)
In addition to fields you’ll fill in, the IRS wants to make sure employers know that:
- The information on the form may be disclosed to the business, the worker, or to the entity that pays the employee’s worker’s compensation, if that entity is different from your firm.
- If you don’t know an answer to a question or field, enter “Unknown” or “Does not apply”.
- If you need more space for an answer, attach an extra sheet of paper and clearly mark which section and question it relates to, along with either the firm’s name and EIN or the worker’s name and SSN.
Part I: General Information
This section collects general information about your firm and your worker’s relationship to the firm. You’ll need to answer:
- Who is completing the form – the firm or the worker.
- Explain why you are filing the form. For example, if you are filing as a firm, you might have received a bill from the IRS for payroll taxes or you might be getting audited by the IRS.
- List the number of workers performing similar services to the worker in question.
- Select whether the worker gained employment through an application, a bid, an employment agency, or some other way.
- Attach copies of supporting documentation including:
- Forms W-2 or Forms 1099-NEC (referred to as 1099-MISC) issued or received
- IRS closing agreements
- IRS rulings
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.
- Describe your business
- Provide details about any merger, reorganization, or sale or purchase of your business.
- Provide your worker’s title, and describe what they do for your business.
- Explain why you believe they are either an employee or an independent contractor.
- Detail any services the worker provided to your firm prior to the services in question.
- If the worker has a written agreement with the firm, then you’ll need to provide a copy of the agreement and describe the terms and conditions of the arrangement.
Part II: Behavioral Control
In this section, the IRS wants to understand the level of involvement or independence of the worker. You’ll need to tell them:
- What training and instruction are you giving your worker?
- How does your worker receive assignments?
- Who dictates how assignments will be completed?
- Who is the go-to problem solver when problems or complaints come up, and who is ultimately responsible for resolving the issues?
- What reports do you require the worker to submit to you – and provide examples.
- Describe the worker’s routine, including schedule and hours.
- Where does the worker do his or her work? If in multiple locations, provide percentages of time.
- Does the worker have to attend meetings and are there penalties for missing meetings?
- Is the worker required to do the work personally or are they allowed to subcontract out the work?
- If the worker needs someone to fill in or assist them, do they find the help or do you?
- Do you have to approve hiring additional workers?
- Who pays the additional workers?
- Do you reimburse the worker if they are paying the additional workers?
Part III: Financial control
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:
- List separately all supplies, equipment, materials, and property that are provided by you, your worker, and any additional third party.
- Does the worker lease space somewhere to work? If so, provide a copy of the lease and describe the terms.
- Explain any expenses the worker incurs while performing work on your behalf.
- List any expenses for which the worker is reimbursed by you or another party.
- Select the type of compensation the worker receives – salary, commission, hourly wage, piece work, etc.
- Does the worker have a drawing account for advances? If so, how often are they allowed to use it and what, if any, are the restrictions?
- Who does the customer pay directly – you as the firm or the worker? Do they pay the full amount to you or the worker or do they pay a percentage to you and to the worker?
- Do you carry workers’ comp insurance on your worker?
- Does the worker carry the risk of economic loss or financial risk, beyond loss of salary? Who is on the hook if equipment or materials are lost or damaged?
- Does the worker determine how much customers pay for your service or products?
Part IV: Relationship of the worker and firm
Now the IRS will ask about benefits, non-compete agreements, work instructions, and terms for termination. Things you’ll need to address:
- In the check boxes, select any benefits provided for your worker.
- Can either side terminate the relationship without penalty?
- Did the worker perform similar services for other firms during the time frame under discussion?
- Are there non-compete agreements in place in any way, shape, or form?
- Is your worker a member of a union?
- What advertising or marketing does the worker do for you, if any?
- If the worker is remote, who provides materials, patterns, instructions, etc. for the work?
- What does the worker do with the finished product? Send it to you? Send it to the customer? Something else?
- How does the firm represent the worker to the public – do you call the worker a contractor, an employee, a representative, etc.? And under whose name does the worker perform his or her services?
- If the relationship has been terminated, under what circumstances did the termination occur?
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.
Section V: For service providers & salespersons
If you are working with a salesperson or someone who delivers services directly to customers, answer the questions in Section V:
- What responsibility does your worker have in soliciting new customers?
- Who provides the worker with sales leads?
- What, if any, are the reporting requirements regarding leads? Describe them.
- Does the firm require specific terms and conditions of sale? If so, what are they?
- Do customers submit orders to the firm, and does the firm have final approval on orders?
- Who defines the worker’s sales territory?
- Does your worker pay for the privilege of serving customers?
- Where does the worker solicit sales?
- What products or services does the worker distribute? If there are multiple services or products, which one is the core of the business?
- Does your worker sell life insurance on a full-time basis?
- Does the worker sell other kinds of insurance for you? If so, what percentage of time is spent on the other types as a group?
- If your worker solicits orders from other entities, provide the percentage of time they spend doing that.
- Is the merchandise purchased by your customers used for resale or in their business operations?
Once completed, you’ll need to file the Form with the IRS.
Just a few notes on how to file Form SS-8 once you’ve completed it:
- Faxed, photocopied, or electronic versions of the form will not be accepted, so you’ll need to mail the hard copy. Remember to keep a copy for your records. It should be mailed to:
Internal Revenue Service
PO Box 630, Stop 631
Holtsville NY 11742-0630
- There is no fee for filing.
- Do not submit the form with your tax return. According to the IRS, that will likely cause delays in processing time.
- You need to use a real signature at the end of the form and write in the date. Stamps are not acceptable.
- If you are a corporation, you’ll need an officer to sign the form. If you are a trust, partnership, or LLC, you will need to have a trustee, general partner, or member-manager with personal knowledge of the facts to sign the form.
For more information on Form SS-8, visit the IRS website or consult your CPA or tax advisor.