Form SS-8

What Is Form SS-8? How to Determine Worker Classification With the IRS

Form SS-8 allows businesses to request an official determination about worker status from the IRS.

Stefana Zaric
Written by Stefana Zaric
April 14, 2022
Contents
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When companies hire independent contractors, they must pay close attention to misclassification. Independent contractor misclassification is the illegal practice of categorizing workers as independent contractors when they are entitled to employee status, benefits, and protections. 

The IRS and DOL offer multiple tests to help businesses determine proper classification. But if you still can’t confidently declare the status of a worker, you (or your workers) can submit Form SS-8 to the IRS to get an official determination.

What is IRS Form SS-8?

Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes) is a request to the IRS to provide a determination of worker status. A company or a worker can submit Form SS-8 when they’d like the IRS to establish whether the person providing the service(s) provided should be taxed as an employee or an independent contractor.

When the IRS receives a valid SS-8 request, they’ll respond with a “worker status” determination letter that defines how the company will tax the worker.

Form SS-8 is four pages long and consists of five parts:

  1. General information
  2. Behavioral control
  3. Financial control
  4. Relationship of the worker and firm
  5. For service providers or salespersons

The tax form requires detailed information about both the firm and worker, including multiple ways to contact each party, the firm’s (and sometimes the worker’s) employer identification number, and worker’s social security number. 

Completing, signing, and filing Form SS-8 serves as a written agreement that the IRS can disclose the information included in the form to any and all parties involved.

Independent contractor vs. employee status

Before we dive too deeply into the use cases for Form SS-8, let’s review the key differences between an independent contractor and an employee.

Independent contractors and employees differ in terms of payment method, rights and protections, scope of work, and more. While your employees work for you under a regulated schedule and receive training and job-related tools directly from your company, an independent contractor usually works for multiple clients, sets their own hours, and provides their own tools and expertise.

Misclassifying a worker is relatively common among businesses, but you want to avoid misclassification as much as possible. Misclassifying an employee or independent contractor can result in severe penalties from an IRS audit, including:

  • Tax violation fines
  • Federal law violation fines
  • Harmed business reputation

Let’s break down the primary differences between employees and independent contractors.

Employment taxes and income tax withholding

When companies hire employees, they participate in income tax withholding and contribution to the employee’s income tax through payroll taxes. Companies don’t help independent contractors with income tax; contractors pay the entirety of self-employment taxes on their own.

Also, employees are on your payroll and are typically given a set salary or hourly wage for their work. Independent contractors are not on your payroll, don’t have a salary, and are either paid hourly or per project.

Employee benefits

Employees on your payroll have the right to protections and benefits such as:

Independent contractors provide their own healthcare and contribute to social security and medicare taxes on their own. Also, contractors are only eligible for a bonus if it’s mentioned as a possibility in their independent contractor agreement.

Freedom and behavioral control

Under the common law rules, a worker is an employee if the firm has the right to control how and when they complete work. Independent contractors are only responsible for delivering work by a deadline.

Since independent contractors work for themselves, they have the right to set their own hours and conduct their business as they like, provided that they meet their deadlines. Employees usually have to follow fixed working hours and are subject to company policies about behavior and procedures.

1099 vs. W-2

When you hire a new employee, they’ll fill out IRS Form W-4, and you’ll file IRS Form W-2 at the end of the fiscal year to report their annual income. Employees and employers will split payroll taxes, social security taxes, and Medicare taxes.

Most independent contractors are small business owners and will pay self-employment taxes. They’ll complete IRS Form W-9 for their clients and, at the end of the fiscal year, report their earnings using IRS Form 1099-NEC or Form 1099-MISC.

Learn more about the differences between W-2s and 1099s.

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Who files Form SS-8?

Either the worker or the firm can file Form SS-8. The person filling out the form must answer the questions as completely and accurately as possible, including the information for all years the worker has provided services for the firm and significant changes in the worker-company relationship over the service term.

The form must be signed and dated by the taxpayer, and the IRS will return forms submitted with a stamped signature or error notice in the case of incomplete information. The individual signing on behalf of a corporation must be an officer with personal knowledge of the facts presented in the form.

The Form SS-8 determination process

Determinations are based on the entire relationship between the business and the worker.

Once the IRS receives your signed and completed Form SS-8, they’ll send confirmation notifications. Since the determination will impact two or more parties, the IRS will attempt to gain information from everyone involved by sending blank Form SS-8s to the other parties listed on page one.

After the IRS collects the forms from all parties, the case will be assigned to an IRS technician who will analyze the relationship of the worker to the company, apply the law, and make a decision. If necessary, the IRS agent will ask for more information from the requestor, other involved parties, or third parties that can help clarify the relationship before making a decision.

The IRS will issue a formal determination letter to the firm or taxpayer (if those are different entities) and send a copy to the worker. The IRS’ decision is binding as long as the facts or laws don’t change. The parties involved can proceed with submitting the tax documents the decision requires.

In some cases, the IRS will not be able to make a formal determination and will instead send the worker an information letter that will help them fulfill their legal tax obligations. Information letters are advisory only and are not binding on the IRS.

Because a Form SS-8 determination isn’t performed while examining a federal tax return, the appeals rights available don’t apply to a Form SS-8 determination. If one or more parties disagrees with the determination, you can submit additional information that wasn’t included in the initial submission and request that the offer reconsiders its decision.

Where to get Form SS-8?

You can get Form SS-8 on the IRS website and review the instructions.

When to file Form SS-8?

You can submit Form SS-8 at any point during the tax year. Do not wait to submit Form SS-8 with your tax return, which will only delay processing time.

E-file Form SS-8

At this time, the IRS will not accept electronic submissions for the initial request for Form SS-8 determination.

Mail in Form SS-8

You’ll need to mail in the completed and signed Form SS-8 to:

Internal Revenue Service

Form SS-8 Determinations

P.O. Box 630

Stop 631

Holtsville, NY 11742-0630

The IRS will not accept faxed, photocopied, and electronic versions of Form SS-8.

Other ways to determine worker classification

Some businesses will shy away from filing Form SS-8 because they find the process too time-consuming, confusing, or don’t want the IRS to think they’re having worker classification issues and launch a full-scale employment tax audit.

If you aren’t sure whether an SS-8 determination is the right move for you or your company, there are a few other ways to classify whether a worker should be labeled an employee or an independent contractor.

Since the IRS rules regarding the economic realities of business relationships and worker status are significantly different from the definitions provided by other government authorities like the US Department of Labor (DOL), it’s helpful to check your classification across multiple tests.

IRS’s 3-factor test

The IRS uses three broad criteria to assess the relationship between a company and a worker. (These will look familiar since they account for three of the five parts on Form SS-8.)

  1. Behavioral Control: If the employer has the right to determine how work gets done (i.e., hours, schedules, location, methods, tools, training), then the worker in question is an employee
  2. Financial Control: If the employer controls the worker’s salary or wages and benefits, the worker is an employee
  3. Type of Relationship: If the worker provides an essential or integral service to the business and works on a long-term basis, they’re likely an employee

DOL’s ABCs test

The DOL offers an “ABC” test to determine whether workers are employees or independent contractors. Labor laws vary from state to state, so it’s crucial to make sure you’re looking at the information for the state your business is registered in.

As the DOL works to revise its independent contractor rule to be more in line with the Fair Labor Standards Act (FLSA), many have called for the DOL to emulate California’s ABC test. The California independent contractor rule states that a worker qualifies as a contractor if they meet all three of the following criteria:

  • The worker is free from the control and direction of the employer in connection with the performance of their work
  • The worker performs tasks that are outside the usual course of the hiring entity’s business
  • The worker is customarily engaged in an independently established trade, occupation, or business of the exact nature as the work performed for the hiring entity

Other factors the Supreme Court has indicated as important in determining employee classification include:

  • The extent to which the services rendered are an integral part of the firm’s business
  • The permanency of the relationship
  • The amount of the worker’s investment in facilities and equipment
  • The nature and degree of control by the business
  • The worker’s opportunities for profit and loss
  • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the worker
  • The degree of independent business organization and operation

>IRS’s (retired) 20-factor test

If you’re still stumped about employee classification, you can use the common law 20-factor test. While it’s no longer in official use, it offers the longest list of concrete questions that can help you reach your decision.

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Misclassifying workers can lead to lots of legal issues and financial consequences. Want to avoid dealing with trying to determine whether or not a team member is categorized correctly?

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