Individuals as Employees or Contractors : Why it Matters What You Are Called When it Comes to Federal Taxes

Abstract

When we file federal taxes, our individual tax burdens are affected by whether our employers and the IRS classify us as “employees” or “contractors.” Today, that distinction is not a neat one. Classifying workers as “employees” or “contractors” belies increasing similarities—like the ability to work remotely during the COVID-19 pandemic—between those classifications. With those increasing similarities in mind, this Note makes two arguments about the employee / contractor distinction in federal tax law. First, federal tax law draws an increasingly arbitrary and unfair line between employees and contractors given the modern substantive convergence of work done as an “employee” or a “contractor.” And second, updating how this distinction is drawn and applied within federal tax law can better serve the purposes of the provisions that treat employees and contractors differently. While federal tax law is not alone in promulgating inequities surrounding this distinction, this Note chose to focus on federal tax law’s application of the distinction for two reasons. Federal tax law already has tools it can use to shift workers toward one classification or another, so there is less need for a large legislative overhaul, which means it will not take as much to effect change. Also, shifting worker classification could help remedy problems currently facing federal tax law. As a result, federal tax law should be motivated by self-interest to acknowledge the similarities between employees and contractors today. With that motivation and the tools to effect change, federal tax law is the perfect area of law to start championing an updated application of the employee / contractor distinction which reflects the modern workforce. The law just needs a nudge in the right direction