The IRS provides to taxpayers various publications to address areas where there are commonly questions about federal income tax. This article provides an overview of the initial sections of IRS Publication 5: Employer’s Tax Guide, specifically whom the IRS considers an employee and how the IRS identifies an employer.
IRS Publication 15 provides employers a summary of their tax responsibilities to the IRS.
Employer Identification Number
When an employer has employees to whom they must provide tax statements and report tax withholdings to the IRS, the employer must have an Employer Identification Number, or EIN. The EIN is a nine-digit number used to identify an employer and their tax accounts with the IRS.
An employer should not use a Social security number as an EIN. The IRS assigns each employer an EIN. An employer can obtain an EIN by submitting Form SS-4, Application for Employer Identification Number, visiting the IRS’ web site, or calling the IRS.
If an employer has more than one EIN because they have taken over another business or for other reasons, the employer should contact the IRS to determine which EIN they should use.
Who the IRS Considers an Employee
An employee is anyone who an employer directs to perform services on their behalf.
The IRS does not consider individuals who are self-employed or who are otherwise in business for themselves as employees. Examples of non-employees include those who perform direct sales and real estate agents.
An employer is responsible for withholding the appropriate social security, Medicare, income, and federal unemployment tax for each employee. In the event the employer categorizes an employee as a non-employee and does not withhold the appropriate monies, the employer will be liable for the uncollected funds.
If an employer is unsure if they should treat a given individual as an employee for tax purposes, the IRS can help the employer make the determination. The employer should file Form SS-8, Determination of Worker Status for Purposes of Federal Taxes and Income Tax Withholding.
When a husband and wife own and operate a business, the IRS considers them as partners rather than employees. The IRS considers the partnership as an employer, which is liable for employment taxes for all other employees.
When a family business employs certain other family members, the IRS may not consider those family members as employees. The IRS does not consider children of the business owners who work for the business and are under the age of 18 as employees for tax withholding purposes. In addition, the IRS does not consider children who perform domestic work for pay for their parents as employees so long as the children are under the age of 21.
For a family business in which one spouse works for the other spouse, the IRS requires the business to pay only income, Social security, and Medicare taxes, but not federal unemployment taxes.
Employee’s Social Security Number
The IRS requires that an employer obtain the Social security number for each employee to prepare the person’s W-2. The employer has the right to see and photocopy the employee’s social security card to confirm it is the correct number for that person and that the person has the right to work in the United States.
An employer has the responsibility of ensuring the social security number provided to them by each employee is that person’s valid social security number. An employer can verify social security numbers using the Social Security Number Verification Service, or SSNVS, or by otherwise filing the appropriate request to the Social Security Administration. In the event an employer reports the incorrect social security number for a given employee, the employer may be subject to a penalty from the IRS.
An employer should not accept or use a resident or non-resident alien’s individual taxpayer identification number, or ITIN, in place of a social security number.
If you are an employer and you have questions about who is considered an employee, how to make required employer filings to the IRS, or any other facet of employer tax responsibilities, you should speak with a tax attorney. By calling the phone number located at the top of this web site, you can get the help you need.
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.