Ten Things IRS Wants Workers to Consider When Contractors Become Employees - Major Points on Steps After Reclassification

Sep 19, 2026

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IRS Notice 9893 addresses what workers should do after IRS recharacterizes a person treated as an independent contractor as an employee. It emphasizes that worker status depends on the facts, not just contract language, including the overall course of conduct. It explains consequences that can follow reclassification, including tax reporting obligations when 1099-MISC payments must be treated as wages on Form 1040, with amended returns and employee FICA payments.

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CategoryLetters

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Pages4

Reading Time2 min

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Ten Things IRS Wants Workers to Consider When Contractors Become Employees

Consider Tax Returns And Amended Returns

Determine How Compensation Must Be Reported

Compute And Pay Employee FICA Taxes

A BNA, INC. DAILY TAX REPORT! VOL. 9, NO. 156 Ten Things IRS Wants Workers to Consider When Contractors Become Employees BY ROBERT W. WOOD have often written about the myriad of tests that can appntray fotor1r—pturposeshe InteadleteRremveneg wSeetviereauswesoenre must be treated as an employee or an independent test; state unemployment development departments use one of several others; Title VII and other federal discrimination laws use another still; there are workers’compensation tests, Employee Retirement Income Security Act employee benefit criteria, and rules for agency liability. Then there are the facts. Obviously, you must evaluate the worker contract and other documents. But the contract and other writings alone are not enough. You must also look to the entire course of conduct between the worker and the company. A contract that purports to give the worker total freedom and to secure independent contractor services will not immunize the relationship from being recharacterized as employment. If, notwithstanding the contract, the worker receives detailed direction as to the method, manner, and means by which to do the work, that will spell employment. Regardless of which test applies, worker status determinations can be terribly fact-intensive. What is more, precisely because there are varying tests, what satisfies one agency or party may not satisfy another. That 1 See Robert W. Wood, ‘‘Independent Contractor-VersusEmployee Issues Arise in Multiple Contexts,’’ BNA Daily Tax Report (192 DTR J-1, 10/4/07) . Robert W. Wood practices law with Wood & Porter in San Francisco ([www.woodporter.com](www.woodporter.com)) and is the author of Taxation of Damage Awards and Settlement Payments (3d Ed. 2008) and Qualiﬁed Settlement Funds and Section 468B (2009), [both available at www.taxinstitute.com](both available at www.taxinstitute.com). This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualiﬁed professional. means you actually can end up with workers who are independent contractors for some purposes, while the same workers are employees for other purposes. The stakes in worker status disputes are high. Understandably, most of the focus in this area is on the overall characterization question—that is, who is and is not an employee. After all, that is a rather large issue. Too frequently, though, we do not focus as much on what it will mean if the workers are in fact recharacterized. Recently, I commented on the litany of things to be done once a worker is recharacterized.2 If, either voluntarily or through some legal compulsion, a worker whois being treated as an independent contractor is ruled to actually be an employee, what happens? It appears that I was not alone in worrying over these issues. In fact, IRS has just released its own list of steps to take after a putative independent contractor is characterized as an employee. Released in July, IRS Notice 9893 addressed commonly asked questions once IRS determines that a worker’s status is that of an employee rather than an independent contractor. A contract that purports to give the worker total freedom and to secure independent contractor services will not immunize the relationship from being recharacterized as employment. Interestingly, this notice is not a directive to employers. Rather, it is a to-do list for the workers themselves. If you are a worker being paid as an independent contractor, but you are ruled to be an employee, what should you do? Here are IRS’s major points. 2 See Robert W. Wood, ‘‘Ten Consequences of Reclassifying Independent Contractors as Employees,’’ Daily Tax Report (123 DTR J-1, 6/30/09) . See also Robert W. Wood,‘‘Ten More Consequences of Reclassifying Independent Contractors as Employees,’’ Daily Tax Report (140 DTR J-1, 7/24/09) . 3 Rev. 7-2009 (153 DTR G-3, 8/12/09) . COPYRIGHT 􀀂 2009 BY THE BUREAU OF NATIONAL AFFAIRS, INC. IS

FAQs

Why does the IRS focus on facts rather than contract language when recharacterizing contractor relationships?

A contract cannot immunize the relationship if the overall course of conduct shows detailed direction and control. IRS evaluates multiple tests and the real working arrangement to determine employee status.

If IRS determines a worker treated as a contractor is an employee, how should tax reporting on a Form 1040 change?

Even if the worker received Form 1099-MISC, IRS says the amounts must be reported as wages on Form 1040.

What FICA tax actions are required after reclassification from independent contractor to employee?

IRS states that the employee portion of both Social Security and Medicare must be computed and paid with the return, and this applies through amended filings when needed.

Sep 19, 2026

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