Legislation to clarify the tax status of independent contractors, including real estate and life insurance sales persons working on commission for brokers, was introduced this week by Rep. Richard A. Gephardt (D-Mo.).
Gephardt said that his bill will offer a "long-term solution" to Internal Revenue Service challenges and regulations to determine who is an independent contractor and who is an employee for tax purposes.
The bill includes a four-part test spelling out independent contractor relationships. For instance:
An independent contractor is defined as one who substantially controls his or her own work hours and schedule.
The IC's main place of business would not be provided by a person for whom he or she performs service; or if it is provided, rent would be paid.
An IC would have a substantial investment in his or her own business or have a potential income fluctuation.
The IC would work under a written contract setting forth the independent contractor relationship.
Gephardt recently told the legislative committee of the National Association of Realtors, which is supporting his bill, that the worker would be treated as an independent contractor and would be responsible for paying his or her own taxes rather than having the money directly withheld-if those four conditions prevail, according to the proposed legislation.
A spokesman for Gephardt said that interim legislation was passed last year to forestall an IRS move to regard real estate salespersons as employes rather than independent contractors.