Challenging independent contractor status Tax Talk by George Saenz, CPA • Bankrate.com

Dear Tax Talk,
I work from my home computer providing customer support to the owner of a number of Web-based businesses.

While my boss provides me some leeway in running things (i.e., he doesn't like to be bothered), there are instances when he provides direction on how certain things should be handled, and there are times I need to go to him to get answers.

I do not have specific hours, but I am paid a flat rate of $500/week for handling the following:

Job description

• The boss is an affiliate with a poker site and I provide support to his players who receive rake back. I answer their general inquiries, keep track of their generated MGR (monthly gross revenue) and how much rake they've earned. I then put the information into an Excel sheet at the completion of each month for my boss to send payments out. • He runs a Web site that lists various affiliate offers. I provide support to the affiliates by answering their inquiries regarding their listings, getting their changes/additions to the Web developer and keeping track of any bids that are received each month for premium spots on the Web site. • Recently I was further tasked with assisting with two more poker sites that he has become an affiliate of. I answer questions from potential players who want to sign up, and direct them on how to do so appropriately.

He is claiming that I am an independent contractor, but I'm not sure if that is the case, or if I should be classified as an employee. I don't want to get into any trouble with the IRS. Any help you can offer is greatly appreciated.
-- Anthony

Dear Anthony,
The odds are in your favor that the IRS won't challenge your classification. What are the odds of winning on the site?

The IRS does not look to challenge a contractor's classification as independent, but instead they go after the payer's (employer's) classification. When companies classify a group of employees as independent, they avoid paying employment taxes on wages as well as maybe other benefits. Instead, the contractor pays the employment taxes when he or she files an income tax return. As far as the IRS is concerned, you've done the right thing but the payer maybe didn't.

Generally speaking, whether a worker is an employee or an independent contractor depends on the amount of direction and control the firm exercises over the worker who performs the services. In Revenue Ruling 87-41, the IRS provides 20 "factors" that may indicate whether an individual is an employee or an independent contractor. From what you describe, your classification as independent may be correct.

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