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Bill Would Clarify Independent Contractor Status in Tax Code via Safe Harbor

Published on: March 29, 2019

Topics: Tax and Accounting

A House bill titled the NEW GIG Act would provide a safe harbor in the tax code clarifying the relationship of independent contractors and the companies for which they perform work.

The bill, which would apply to all independent contractors, is driven by concerns regarding the gig economy.  A statement upon introduction by bill sponsor Rep. Tom Rice (R-SC) notes:  

“Today’s technology driven economy has created new opportunities for people who provide on-demand services like ride sharing, home cleaning, or food delivery.  Just last month, WAITR, a platform for online ordering and food delivery, created 75 new jobs in [South Carolina's Pee Dee region].  These GIG economy companies and the people they employ have contributed to dynamic economic growth across the country, but face challenges regarding their worker classification with the IRS.”

The measure's safe harbor focuses on three areas that are intended to demonstrate the independence of the service provider from the service recipient and/or the payer based on objective criteria rather than a subjective facts-and-circumstances analysis:

  • The relationship between the parties (e.g., job-by-job arrangement, the service provider incurs his own business expenses, the service provider is not tied to a single service recipient);
     
  • The location of the services or the means by which the services are provided (e.g., the service provider has her own place of business, does not work exclusively at the service provider’s location, provides her own tools and supplies); and
     
  • A written contract (e.g., stating the independent-contractor relationship, acknowledging that the service provider is responsible for her own taxes, providing the service recipient’s reporting and withholding obligations).

Why it matters:  A companion measure has been introduced in the Senate by Sen. John Thune (R-SD).  While it’s unclear whether the bill can gather steam in Congress, it is a clear indicator that the issue of the lack of clarity pertaining to independent contractors in various areas of the law is not going away.

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