1099 Contractor Rights: Misclassification & Tax FAQ

The IRS historically used a 20-factor test to determine whether a worker is an employee or independent contractor. These factors examine the degree of control and independence in the working relationship. Key factors include:

• Whether the company provides instructions on when, where, and how to work
• Whether training is provided
• Whether the worker can realize a profit or loss
• Whether the worker provides their own tools and materials
• Whether the relationship is permanent or temporary
• Whether the worker sets their own hours
• Whether the worker can work for multiple clients
• Whether the worker can be fired at will

The IRS has since consolidated these into three main categories: behavioral control, financial control, and the type of relationship. No single factor is determinative; the IRS looks at the entire relationship.

California's ABC test, codified by Assembly Bill 5 (AB 5), presumes all workers are employees unless the hiring entity can prove all three of the following conditions:

• (A) The worker is free from the control and direction of the hiring entity in performing the work, both under the contract and in fact
• (B) The worker performs work that is outside the usual course of the hiring entity's business
• (C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed

All three prongs must be satisfied for the worker to be classified as an independent contractor. The B prong is often the most difficult to satisfy, as it requires the work to be truly outside the company's core business. Certain professions have exemptions and use the older Borello test instead.

When misclassified as a 1099 independent contractor instead of an employee, you lose significant legal protections and benefits. These include:

• Minimum wage and overtime protections under the FLSA and state law
• Meal and rest break requirements
• Workers' compensation coverage for workplace injuries
• Unemployment insurance benefits if you lose your job
• Employer-paid portion of Social Security and Medicare taxes (you pay the full 15.3% self-employment tax instead of the 7.65% employee share)
• Employer-provided health insurance and retirement benefits
• Protection under anti-discrimination and harassment laws in some cases
• Family and medical leave protections under FMLA
• Reimbursement for business expenses

If you believe you have been misclassified, you may be able to recover these lost wages and benefits through a misclassification claim.

To request an official determination of your worker status from the IRS, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. You can file this form if you are a worker who believes you have been misclassified, or if you are a business seeking clarification on how to classify a worker.

The form asks detailed questions about the working relationship, including instructions given, training provided, work schedule, payment methods, and who provides tools and materials. Submit the completed form to the IRS by mail. Processing typically takes at least six months.

The IRS will issue a determination letter stating whether the worker should be classified as an employee or independent contractor. This determination is binding on the employer for federal tax purposes and can support claims for back taxes and other remedies.

Yes, if you were misclassified as an independent contractor, you may be able to recover a portion of the self-employment taxes you paid that should have been your employer's responsibility. As a misclassified worker, you paid the full 15.3% self-employment tax (Social Security and Medicare) instead of the 7.65% employee share.

You can file Form 8919, Uncollected Social Security and Medicare Tax on Wages, to report your wages and pay only the employee share of these taxes. To use this form, you need a reason code, such as having filed an SS-8 or receiving a determination from the IRS or state agency.

You can also file Form 4852, Substitute for Form W-2, if your employer did not provide a W-2. Consult with a tax professional, as incorrectly filing these forms can trigger audits.

The statute of limitations for misclassification claims varies depending on the type of claim and jurisdiction:

• Federal wage claims (FLSA): Two years from the date of the violation, or three years if the violation was willful
• California wage claims: Three years for most claims including minimum wage, overtime, and meal break violations under Code of Civil Procedure Section 338
• Tax-related claims: Generally three years from the filing date of your tax return to claim a refund for overpaid self-employment taxes
• State labor agency claims: Typically follow state statute of limitations

It is important to act promptly to preserve your rights and maximize your potential recovery.

In a successful worker misclassification lawsuit, you may recover various types of damages depending on your claims. These can include:

• Unpaid minimum wages and overtime for all hours worked
• Meal and rest break premium payments (one hour of pay per day for each violation in California)
• Unreimbursed business expenses you should have been compensated for
• The employer's share of Social Security and Medicare taxes (7.65% of wages)
• Waiting time penalties if final wages were not paid promptly upon termination (up to 30 days of wages in California)
• Interest on unpaid wages
• Liquidated damages equal to the unpaid wages under FLSA for willful violations
• Attorney's fees and court costs
• Potential penalties under state laws like California's PAGA

The total recovery can be substantial, especially for long-term misclassification.

To prove misclassification, gather evidence showing the employer controlled how, when, and where you performed your work, or that you fail to meet the legal tests for independent contractor status. Important evidence includes:

• Written agreements, contracts, or 1099 forms
• Evidence of a set work schedule or required hours
• Training materials or instruction manuals provided by the company
• Communications showing supervision or direction of your work
• Company email addresses, business cards, or uniforms provided to you
• Requirements to use company equipment or follow company procedures
• Evidence you could not work for competitors or other clients
• Records showing you were paid hourly or on a salary basis rather than by project
• Evidence you performed the same work as employees
• Any indication the company controlled the details of how work was performed

California uses two different tests for worker classification depending on the circumstances:

The ABC test, adopted by AB 5, is the default standard and presumes workers are employees unless all three prongs are met. It is considered more worker-friendly because employers must prove all elements.

The Borello test, from the 1989 California Supreme Court case S.G. Borello & Sons v. Department of Industrial Relations, is a multi-factor balancing test that examines the totality of the circumstances, with the primary factor being the right to control the manner and means of accomplishing the work.

Under AB 5, certain professional categories are exempt from the ABC test and instead use the Borello test, including licensed professionals like doctors, lawyers, and accountants; certain creative professionals; and business-to-business contractors meeting specific criteria. Check the current exemption list to determine which test applies to your situation.

You have multiple options for filing a worker misclassification complaint:

Federal level:

• File Form SS-8 with the IRS for a worker status determination
• File a wage complaint with the Department of Labor Wage and Hour Division for FLSA violations
• File with the National Labor Relations Board if your classification affected organizing rights

California state level:

• File a wage claim with the Division of Labor Standards Enforcement (DLSE/Labor Commissioner)
• File a complaint with the Employment Development Department (EDD) for unemployment and disability insurance issues
• File a lawsuit in civil court
• File a Private Attorneys General Act (PAGA) claim on behalf of yourself and other aggrieved workers

Consult with an employment attorney to determine the best strategy for your specific situation.