Charles Read, CPA, USTCP, IRSAC
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Some types of workers that would clearly be employees under the twenty common-law test are treated as independent contractors because Congress chose them to be independent contractors instead of employees. They are looked at by the IRS as independent contractors for income tax, FICA and FUTA taxes, as long as clear circumstances are met. There are two types of these statutory non-employees.
Qualified Real Estate Agents
Applies to salespeople who are licensed by the appropriate licensing authority to operate as real estate agents in that State. Their duties would be performed in the process of the sale of real estate including showing prospective buyers properties and advertising properties for sale.
Applies to workers who sell consumer goods on a resale basis, or for commission. They normally sell in the client’s home, or possibly their own, but not in an established retail sales location. Think Mary Kay or Fuller Brush (for the older generation). The exemption applies to newspaper delivery people or related products such as buying guides like the Greensheet. This also includes people who put on box shows for clothing companies.
The two above non-employees must meet the following requirements before they are exempt from payroll tax withholding requirements.
1. Their compensation mainly has to depend on their sales or production and not on how long they work.
2. They must have a contract in writing agreeing that they will not be treated as an employee for Federal employment taxes