How Tax Reform Impacts Worker Classification

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For years, being an independent contractor meant paying more taxes, but with the 2017 tax reform changes the classification of independent contractor may be a much better choice.

Before your clients take the plunge into self-employment status or switch employees to independent contractors, here are some key points to help your clients understand their classification decisions, resulting tax effects and what happens if they make the wrong classification.

Defining the Classifications

Each year, the IRS updates Publication 15A, Employer’s Supplemental Tax Guide, with a section entitled “Who Are Employees?” A worker’s status is determined based on the degree of control in three categories:

  1. Behavioral Control – Facts that show whether the business has a right to direct and control how the worker does the tasks for which the worker is hired. If the business is telling you what to do, when to do it and how to do it, you are probably an employee.
  2. Financial Control – Facts that show whether the business has a right to control the business aspects of the worker’s job. If you are not experiencing the same business pressures an owner would feel, you are probably not running your own business and are, in reality, an employee.
  3. Type of Relationship – Facts that show the parties’ type of relationship. Independent contractors are free to work wherever and for whomever. If someone is dictating these facets to you, then you are probably an employee.

Impact of Tax Reform

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About January Colandrea CPA

January C

January Colandrea, CPA, is a Tax Content Analyst working at Intuit ProConnect for ProSeries in San Diego, CA.  Prior to joining Intuit in September 2016, January worked as a senior tax analyst in public accounting and worked in private industry specializing in international taxation. 


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Jun 29th 2018 14:07

AGI number is incorrect it should be calculated before standard deduction therefore it should be 100,000 in case 1.

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to ccsunkist99
Jun 29th 2018 14:45

It's an incorrect label. The test is taxable income before the 199A deduction.

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