Complete Legal Tennessee Independent Contractors Forms For Free

As explained above, the 20-Factor Test provides criteria for assessing how much control and independence a worker has in their relationship with a hiring company. The general goal is to understand whether a business has the right to direct and control a worker's actions.

The law further states that independent contractor status is evidenced if the worker: (1) has a substantial investment in the business other than personal services, (2) purports to be in business for himself or herself, (3) receives compensation by project rather than by time, (4) has control over the time and place ...

The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. If you are an independent contractor, then you are self-employed.

When deciding whether you can safely treat a worker as an independent contractor, there are two separate tests you should consider: The common law test; and The reasonable basis test. The common law test: IRS examiners use the 20-factor common law test to measure how much control you have over the worker.

When you hire a 1099 employee, the first thing you need to do is get a W-9 form from the worker. The W-9 form provides your business with the worker's Social Security number or Individual Taxpayer Identification Number (ITIN). You'll use this number to prepare and file IRS Form 1099-NEC at the end of the year.

In 2019, the IRS found that this test was too complicated and difficult to apply consistently and revealed a new way of classifying workers in their Employer's Supplemental Tax Guide (2020). Essentially, the IRS compressed the 20-factor test into what we now know as the three-pronged test or the common law test.