Question

What three factors are considered by the IRS in determining employment status?

1) How the employer has categorized other employees in that role in the past
2) Level of control the employer has over the financial aspect of the relationship
3) Level of control the employer has over the work
4) Parties perception and definition of the relationship
5) Whether the employee has established an LLC

Answer 1

2./3./4.

Step-by-step explanation:

1) Level of control the employer has over the work: The IRS looks at how much control the employer has over the work being performed by the individual. If the employer has the right to control the details of how the work is done, such as providing instructions, setting specific hours, and providing necessary tools, it indicates an employer-employee relationship.

2) Level of control the employer has over the financial aspect of the relationship: The IRS considers whether the employer has control over financial aspects, such as how the worker is paid (hourly, salary, or project-based), who provides the tools and supplies needed for the work, and if expenses are reimbursed. If the employer has significant control over these financial aspects, it suggests an employer-employee relationship.

3) Parties' perception and definition of the relationship: The IRS looks at how both the employer and the worker view and define the relationship. This includes written contracts or agreements that outline the nature of the work arrangement. However, it's important to note that the IRS places more weight on the actual facts of the working relationship rather than what is stated in a contract.

Answer 2

The IRS factors for employment status are the level of financial control by the employer, the level of control over work, and how both parties define their relationship. Sole proprietors pay corporate income, individual income, and payroll taxes. Social Security tax is regressive.

Step-by-step explanation:

The three factors considered by the IRS in determining employment status are:

• Level of control the employer has over the financial aspect of the relationship
• Level of control the employer has over the work
• Parties perception and definition of the relationship

These factors help the IRS ascertain whether an individual is an employee or an independent contractor.

An individual owning a corporation as the sole employee would pay corporate income tax on profits, individual income tax on his salary, and payroll tax on wages. Self-employed individuals pay a self-employment tax, which covers both the employee and employer portions of Social Security and Medicare taxes. The Social Security tax at 6.2% on income earned below $113,000 is considered a regressive tax, as it takes a larger percentage from lower-income earners.