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Tax Court Says Private-Duty Nurses are Employees

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A new Tax Court case showed that in the ongoing debate over whether someone is an employee or contracted worker, Section 530 relief can work in a client's favor, but not always.

May 24th 2022
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The IRS and employers are often at loggerheads over whether workers should be treated as employees or independent contractors, private-duty nurses included. 

When push comes to shove, an employer may have an ace in the hole: Section 530 relief. However, as shown in a new case, Pediatric Impressions Home Health, TC Memo 2022-35, 4/12/22, you can play this card only if you hold a winning hand.

Background: The classification of workers can be a big deal from a tax viewpoint. If a worker is classified as an employee, the employer must withhold federal income tax and the employee’s half of Social Security and Medicare taxes (FICA). Even worse, the employer must pay half of the FICA tax and the federal unemployment tax (FUTA). And it must issue Form W-2 for the wages and send a copy to the IRS.

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In contrast, if a worker qualifies as an independent contractor, the employer doesn’t have to worry about federal income tax withholding, FICA or FUTA. Also, it doesn’t have to provide expensive fringe benefits, like health insurance, that are offered to employees.

Although there are no absolute rules for determining the status of workers, the IRS has established certain guidelines. Generally, workers don’t qualify as independent contractors if they perform services that are controlled by the employer. Independent contractors must operate independently.  In the event the IRS contests a classification, however, an employer may be able to fall back on a special safe-harbor rule. 

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