How to File an IRS Misclassification Complaint

Worker misclassification happens when a business treats an individual as an independent contractor when they should be considered an employee. This dictates who is responsible for payroll taxes. An employee has Social Security and Medicare taxes withheld from their paycheck, with the employer paying a matching share. When misclassified, a worker is responsible for paying the entire amount of these taxes through self-employment taxes, which can create an unexpected financial burden.

This incorrect classification also means the worker is likely excluded from benefits and protections such as unemployment insurance, workers’ compensation, and employer-provided health insurance. The Internal Revenue Service (IRS) uses several criteria to define worker status.

Determining Your Worker Status

The IRS does not use a single rule to determine if a worker is an employee or an independent contractor. Instead, it looks at the entire relationship between the worker and the business. The facts of this relationship are examined through three general categories: behavioral control, financial control, and the relationship of the parties. No single factor is decisive; the overall picture of the work arrangement dictates the final determination.

Behavioral control focuses on whether the business has the right to direct and control how the worker does their job. This includes the level of instruction the business provides, such as when and where to work, what tools or equipment to use, and where to purchase supplies. An employee is often trained to perform a service in a specific manner, whereas an independent contractor uses their own methods. Evaluation systems that measure the details of how the work is performed, rather than just the end result, can also indicate an employment relationship.

Financial control examines the business aspects of the worker’s job. A key aspect is how the worker is paid; employees receive a regular wage for a specific time period, like an hourly or weekly rate, while independent contractors are paid a flat fee for a project. Another consideration is the extent to which the worker has unreimbursed business expenses. Independent contractors are more likely to have ongoing business expenses that are not reimbursed, unlike employees whose business-related costs are covered by the employer. The worker’s investment in the facilities and tools used is also relevant, as independent contractors often have a personal investment in their equipment.

The relationship of the parties looks at how the worker and the business perceive their interaction. Written contracts describing the relationship are considered, though the substance of the relationship, not the label, is what matters. The provision of employee-type benefits, such as health insurance, pension plans, or paid leave, is a strong indicator of an employee relationship. The permanency of the relationship is another factor; an indefinite relationship suggests employment, while a relationship focused on a specific project is more common for independent contractors. If the worker’s services are a key aspect of the business’s regular activities, it is more likely they are an employee.

Information and Forms for an IRS Complaint

To formally challenge a potential misclassification, you will use specific IRS forms. The primary document is Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. This form serves as a formal request for the IRS to investigate the facts and issue an official ruling on your worker status.

To complete Form SS-8 accurately, you will need to gather documentation that substantiates your claim of being an employee. The form is a detailed questionnaire about the behavioral, financial, and relationship aspects of your job. You should provide:

• Copies of any written agreements or contracts
• Pay stubs or statements showing how you were paid, such as Form 1099-NEC
• Detailed records of your work hours
• A thorough description of your job duties
• A summary of any verbal or written instructions you received
• Information about who provided the tools and materials for your work

The other document is Form 8919, Uncollected Social Security and Medicare Tax on Wages. This form is filed with your annual income tax return (Form 1040) to correctly calculate and pay your share of Social Security and Medicare taxes as if you were an employee. Independent contractors are responsible for the full 15.3% self-employment tax, which covers both the employee and employer portions. By filing Form 8919, you calculate only the employee’s share of 7.65%, and the IRS will then pursue the employer for their matching portion.

You can file Form 8919 if you believe you were misclassified, even if the IRS has not yet made a determination on your Form SS-8. On Form 8919, you must enter a reason code that explains your situation. For instance, if you have filed Form SS-8 and are awaiting a response, you would use reason code “G.” If the IRS has issued a determination letter stating you are an employee, you would use reason code “A.” The information needed to complete Form 8919 is the total compensation you received from the employer, reported on Form 1099-NEC.

Filing Your Complaint and Tax Return

The submission process for your misclassification complaint involves separate actions for Form SS-8 and Form 8919, as they are not sent together.

Your completed Form SS-8 must be mailed to the IRS. It is sent to a specific address designated for these determinations, which can be found in the official instructions for the form. This form is submitted on its own and should not be included with your annual federal income tax return. Filing Form SS-8 initiates the determination process but does not alter your tax filing deadlines.

The completed Form 8919 is handled as part of your annual tax filing. You must attach it to your Form 1040, U.S. Individual Income Tax Return, when you file for the year in which you earned the income. Whether you are filing a paper return by mail or submitting your return electronically, Form 8919 becomes an integral part of that submission.

The IRS Process After Submission

After you submit your forms, the IRS follows distinct procedures for the Form SS-8 determination and the processing of your tax return with Form 8919.

Once the IRS receives your Form SS-8, it will begin its investigation. The first step is an acknowledgment of receipt sent to you. Following this, the IRS will contact the employer you identified on the form, providing them with an opportunity to present their version of the working relationship. This process can be lengthy, often taking at least six months to complete as the agency gathers and analyzes information from both sides. Upon concluding its review, the IRS will issue a formal determination letter to both you and the employer, stating your worker status for federal tax purposes.

The processing of your tax return containing Form 8919 follows a different path. When the IRS processes your Form 1040, it will assess the employee’s share of Social Security and Medicare taxes that you calculated on Form 8919. This allows you to pay only your portion of these taxes for the year. Subsequently, the IRS will contact the employer to collect the employer’s unpaid share of these taxes, along with any applicable penalties and interest. This action shifts the tax burden for the employer’s portion from you to the company.