The Art of Business: The Biggest Tax Question of All

If you have several clients, it’s easy to answer the question “am I an employee or independent contractor?” You’re a contractor and your clients have no tax obligation to you other than to issue a 1099 form that records accurately your compensation for the tax year.
But, as is the case with many graphic artists and creative professionals, if you have primarily one client — either a company or graphic arts firm — that dictates your workload and schedule, the question is far more difficult to answer.
Taxing Situations
The practice of paying people like contractors but regarding them as employees has, unfortunately, become prevalent in the graphic arts world — both within graphic arts firms and with clients that “own” you but don’t consider you an employee.
The consequences are significant. An employer must generally withhold income taxes, withhold and pay social security and Medicare taxes, and pay unemployment taxes on wages paid to employees. That’s an onerous burden, and it’s no wonder employers would prefer to pay you as an independent contractor.
But is it fair? If you come to work each day — even in your own home — and the boss tells you what job to work on and says it’s okay to take tomorrow off, then you’re treading in employee waters.
Twenty Questions
If you feel like you may be a victim (or might be victimizing someone) in this way, take the time to answer the “IRS 20 Questions,” still the best way to determine the contractor or employee dilemma:
1. Instructions. An employee must comply with instructions about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to control how the work results are achieved.
2. Training. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods and receive no training from the purchasers of their services.
3. Integration. An employee’s services are usually integrated into the business operations because the services are important to the success or continuation of the business. This shows that the employee is subject to direction and control.
4. Services rendered personally. An employee renders services personally. This shows that the employer is interested in the methods as well as the results.
5. Hiring assistants. An employee works for an employer who hires, supervises, and pays workers. An independent contractor can hire supervise and pay assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.
6. Continuing relationship. An employee generally has a continuing relationship with an employer. A continuing relationship may exist even if work is performed at recurring although irregular intervals.
7. Set hours of work. An employee usually has set hours of work established by an employer. An independent contractor generally can set his or her own work hours.
8. Full-time required. An employee may be required to work or be available full-time. This indicates control by the employer. An independent contractor can work when and for whom he chooses.
9. Work done on premises. An employee usually works on the premise of an employer, or works on a route or at a location designated by an employer.
10. Order or sequence set. An employee may be required to perform services in the order or sequence set by an employer. This shows that the employee is subject to direction and control.
11. Reports. An employee may be required to submit reports to an employer. This shows that the employer maintains a degree of control.
12. Payments. An employee is paid by the hour, week, or month. An independent contractor is usually paid by the job or on a straight commission.
13. Expenses. An employer generally pays an employee’s business and travel expenses. This shows that the employee is subject to regulation and control.
14. Tools and material. An employer normally furnishes an employee with significant tools, materials, and other equipment.
15. Investment. An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.
16. Profit or loss. An independent contractor can make a profit or suffer a loss.
17. Work for more than one person or firm. An independent contractor is generally free to provide his or her services to two or more unrelated persons or firms at the same time.
18. Offers services to general public. An independent contractor makes his or her services available to the general public.
19. Right to fire. An employee can be fired by an employer. An independent contractor cannot be fired so long as he or she produces a result that meets the specifications of the contract.
20. Right to quit. An employee can quit his or her job at any time without incurring liability. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good to failure to complete it.
Get the Answers
These factors, naturally, should be considered guidelines only. Not every factor is applicable in every situation, and the degree of importance of each depends on the type or work and individual circumstances.
If you’re still not sure, and want the IRS to make a determination, file Form SS-8 a “Determination of Employee Work Status for purposes of Federal Employment Taxes and Income Tax Withholding.”

Eric is an award-winning producer, screenwriter, author and former journalist. He wrote the script and co-produced the feature film SUPREMACY, starring Danny Glover, Anson Mount, Joe Anderson and Academy-Award-winner Mahershali Ali. As founder and president of Sleeperwave Films, Eric relies on his unique background to develop film commercial films around contemporary social issues. As a seasoned storyteller, Eric also coaches corporate executives on creating and delivering compelling presentations. He has written thought leadership materials for entertainment and technology companies, such as Cisco, Apple, Lucasfilm and others.
  • anonymous says:

    I found an excellent way to side step all this corporate mumbo jumbo and not be treated like an employee/peon: I incorporated.

    I simply furnish my corporate Tax ID number on every invoice and that’s the end of it. Few hassles for me or my clients. I needn’t fill out any tax forms for clients, either. No W2s or 1099s. It’s pain-free!

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