The tax law covering independent contractors is very complicated. Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -

• An independent contractor
• A common-law employee (Employee)
• A statutory employee
• A statutory nonemployee

Who is a Common-Law Employee?
Under common-law rules, anyone who performs services for you is your employee is you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

To determine whether an individual is an employee or independent contractor under the common law, the relationship of the worker and the business must be examined. All evidence of control and independence must be considered. In an employee-independent contractor determination, all information that provides evidence of the degree of control and degree of independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Refer to Publication 15-A, Employer's Supplemental Tax Guide for additional information.

Who is an Employee?
A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.

Statutory Employees
If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute ( statutory employees ) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social security and Medicare taxes, below.

• A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.
• A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
• An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
• A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer s business operation. The work performed for you must be the salesperson s principal business activity. Refer to the Salesperson section located in Publication 15-A, Employer s Supplemental Tax Guide for additional information.

Statutory Non-Employees
There are two categories of statutory non-employees: direct sellers and licensed real estate agents. They are treated as self-employed for all Federal tax purposes, including income and employment taxes, if:

    1. Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked and
    2. Their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes.

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Employers required to file Forms W-2, W-2G, 1099-MISC, and 1099-R on magnetic media with the Wisconsin Department of Revenue now have the option of electronically transferring data through the Department's website, rather than submitting physical media. Using this new file transfer option requires no additional computer programming, as the file format is the same as files transferred using magnetic media. The only change from magnetic media is that files transferred via the Internet must be in ASCII format. The file transfer site is available by accessing the Department's website. Click on "Business", then on "Electronic Filing", and then on "W-2 & 1099 Transmission".

For those who prefer to continue to file using magnetic media, the Department will accept cartridges (IBM 3480/3490 compatible), diskettes or CD-Rom. Starting with wage statements and information returns filed in 2004 for tax year 2003, the Department will no longer accept 9 track magnetic reel tape.

Wage statements and information returns may be, and are encouraged to be, filed with the Department using magnetic media or the file transfer site even though that format is not required. Additional information is available by contacting the Department at: ATTN: Magnetic Media Coordinator Audit Bureau Wisconsin Department of Revenue 2135 Rimrock Rd. Rm. 232B Madison, WI 53708-8906, 608-267-3327, or e-mail: w2data@dor.state.wi.us.

Wisconsin Tax Bulletin, No. 137, January 2004

Contribution rates for experience-rated employers for 2004 range from 0.2% to 7.5%. There is also no mutualized tax for 2004. New employers in the construction industry pay a rate of 3.7% and all other new employers continue to pay a rate of 2.7% in 2004.

Maximum weekly benefit amounts in Ohio for the three dependency classes for the period beginning January 1, 2004, are $323 for an individual with no dependents, $392 for an individual with one or two dependents, and $436 for an individual with three or more dependents (ODJFS website).

The IRS has announced that some of the information reporting requirements set forth in Rev. Rul. 2003-43, I.R.B. 2003-21 will not apply to payments made prior to 2003 in connection with flexible spending arrangements (FSAs) or health reimbursement arrangements (HRAs). Pursuant to that ruling, payments made to medical care providers through the use of debit, credit and stored-value cards are generally reportable to the IRS by the employer on Form 1099-MISC. However, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173), enacted on December 8, 2003, added new Code Sec. 6041(f), which excepts payments for medical care totaling $600 or more that are made from FSAs or HRAs from the information reporting requirements.

By applying the Form 1099 requirement without retroactive effect for payments made under FSAs and HRAs prior to 2003, the IRS is assuring employers and third-party administrators that such payments will not be subject to information reporting prior to December 31, 2002, the effective date of Code Sec. 6041(f).

IRS Notice 2004-16, IRB 2004-9, March 1, 2004