The IRS is always changing and evolving their policies and procedures. This can be a bit confusing for taxpayers, as well as tax professionals.
One question that comes up often is whether or not the IRS still uses the 20 factor test.
In this blog post, we will answer that question and provide more information on the 20 factor test!
What is the 20 factor test?
The 20 factor test is a tool that the IRS uses to determine whether or not a taxpayer is an independent contractor or an employee.
The IRS will consider all 20 factors when making their determination.
Some of the factors that are considered include:
- How much control does the company have over the worker?
- Is there a written contract between the worker and the company?
- How long is the relationship between the worker and the company?
- Does the worker receive benefits from the company?
- What type of work is being performed?
All of these factors are taken into consideration when determining whether or not someone is an employee or an independent contractor.
But the 20 factor test is not the only tool that the IRS uses to determine employment status.
They will also look at other factors, such as state law, and whether or not the worker is economically dependent on the company.
However, the 20 factor test is a good starting point for understanding how the IRS makes their determination.
How was it used in the past?
The 20 factor test was first introduced in 1987.
It was created as a way to help IRS auditors determine whether or not a taxpayer was an employee or an independent contractor.
The test was updated in 1996 and again in 2020. The IRS has made some changes to the factors that are considered, but the overall principle remains the same.
In the past, the 20 factor test was used primarily by IRS auditors. However, it is now available for use by all taxpayers.
This means that any taxpayer can use the 20 factor test to help them determine their employment status.
How has it changed over time?
The IRS has made some changes to the 20 factor test over time.
In 2020, they updated the test to reflect changes in the economy and the workforce. Some of the factors that are now considered include:
- Whether or not the worker is paid by the hour
- How much control does the company have over when and where the worker works?
- What type of work is being performed?
These are just a few of the changes that have been made to the 20 factor test.
The IRS has also made some other changes, such as adding new factors and changing how some of the factors are weighted.
However, the overall principle of the test remains unchanged.
What are some of the criticisms of the test?
Critics of the 20 factor test say that it is too complex and difficult to understand.
They also argue that it does not always accurately reflect the true relationship between a worker and a company.
Some critics have even called for the IRS to do away with the test altogether.
However, there are no plans to do this at present. The IRS continues to use the 20 factor test as one of the tools they use to determine employment status.
How could it be improved?
There are a few ways that the 20 factor test could be improved. One way would be to make it simpler and easier to understand.
This would help taxpayers, as well as tax professionals, when they are trying to determine employment status.
Another way to improve the 20 factor test would be to make it more accurate.
This could be done by changing some of the factors that are considered, or by adding new factors. However, it is unlikely that the IRS will make any major changes to the test in the near future.
The 20 factor test is a tool that has been used by the IRS for many years.
It is not perfect, but it is one of the best tools available for determining employment status. There are some criticisms of the test, but there are also ways to improve it.
Ultimately, the decision on whether or not to use the 20 factor test is up to the IRS. However, it remains a useful tool for taxpayers and tax professionals alike.
If you have questions about your employment status, or if you are being audited by the IRS, it is important to speak with a tax professional.
They can help you navigate the IRS Santa Ana rules and regulations, and they can help you understand the 20 factor test. Contact a tax professional today to get started!