Form SS-8 is a document that requests a decision on a U.S. worker's status for federal employment taxes and income tax withholding purposes, specifically whether the worker is considered to be an employee or an independent contractor.
The need for Form SS-8 arises when there is uncertainty or disagreement regarding the classification of a U.S. worker as either an employee or an independent contractor.
Issued by the U.S. Internal Revenue Service (IRS), Form SS-8 is also called Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
The classification of a worker as an independent contractor or employee is significant for tax purposes, as it affects how income taxes, Social Security taxes, and Medicare taxes are withheld and paid. Employers generally withhold payroll taxes for their employees, while independent contractors are responsible for their own tax obligations.
Who files Form SS-8?
A company or worker can file Form SS-8. When either party wants the IRS to decide whether the person providing the services should be taxed as a standard employee or an independent contractor, they can submit Form SS-8.
How to obtain and file Form SS-8
Here are the general steps for acquiring and submitting Form SS-8:
- Obtain Form SS-8. Download Form SS-8 from the official IRS website.
- Fill out the form. Complete the form, including adding accurate and detailed information about the worker and the work relationship.
- Include additional documentation. Attach extra documents that support the information provided on Form SS-8, such as contracts, agreements, or other relevant documents.
- Review instructions. Before submitting the form, carefully read the instructions supplied with Form SS-8.
- Submit to the IRS. Mail or fax the completed form to the IRS.
- Wait for IRS determination. The IRS assesses the information and decides the worker's employment status.
It’s important to know the IRS won’t accept Form SS-8 if it isn’t signed and dated correctly, doesn’t include enough additional documentation, has supplemental wage issues, or if the business and worker are in litigation with one another.
How does the IRS determine classification?
The IRS classifies workers based on the relationship between the employer and the worker. The key factors considered fall into distinct categories:
Autonomy and training
When the employer provides detailed instructions on when, where, and how to perform the work or offers training on job-specific techniques, this suggests that the worker is a traditional employee.
In an employer-contractor relationship, the employer typically grants autonomy on how, when, and where the contractor can complete the work.
Tools and equipment
If the employer provides the worker with tools and equipment, like a computer and software, this behavior suggests the worker is an employee.
On the other hand, if the worker supplies their own tools to perform their duties, the worker is usually an independent contractor.
Contract and benefits
A written employment contract outlining an ongoing professional relationship and incorporating employee benefits indicates that the worker holds a classification as a standard employee. Benefits for standard employees may include PTO, health insurance, and retirement plans.
While an independent contractor and employer may also have a written contract, the work is typically temporary, and the contractor does not receive employee benefits.
How long does an SS-8 determination take?
The IRS generally processes Form SS-8 decisions within a few months. However, receiving an IRS decision could take up to six months to a year in some cases.
The timeline varies, and the IRS doesn't specify a fixed timeframe. The case's complexity and the volume of requests may impact the processing time.
During this wait time, the IRS may contact both the worker and the employer for additional information if needed. Incomplete information or discrepancies on the form requiring clarification can delay the process.
Why is worker classification important?
Classifying a worker as an independent contractor or employee is essential for tax purposes because it determines how taxes are withheld and paid.
Employers withhold taxes on income, Social Security, and Medicare on behalf of their employees. Conversely, independent contractors are responsible for paying their own taxes.
Worker misclassification can lead to severe penalties, including unpaid taxes, fines, employee back pay entitlements, and other legal ramifications.
Read more in our complete guide to employee misclassification.
Mitigate worker misclassification risk with Velocity Global
Engaging talent in global markets requires the knowledge to mitigate the risks associated with worker misclassification. Collaborating with an experienced partner offering localized expertise in compliance and employment contracts allows you to alleviate misclassification issues.
Velocity Global's Employer of Record (EOR) solution empowers companies to efficiently and compliantly onboard talent in over 185 countries, eliminating the necessity of establishing local entities or relying on foreign contractors.
Additionally, Velocity Global offers expertise in drafting compliant employment contracts and seamlessly converting contractors into employees. This comprehensive approach ensures a smooth and legally sound global expansion for businesses.
Contact Velocity Global to learn how we can help ensure compliance when building your global team.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.
