Many self-employed individuals are actually common-law employees, who operate as regular employees, just on different contract terms.
According to the IRS, under common-law rules, if the company you work for can control what will be done and how it will be done, then you may actually be considered an employee.
This is true even when you get the freedom of action. What matters is that the company has the right to control the details of how the services are performed.
It may be beneficial to report your self-employment income as a common-law employee for various reasons, such as reducing self-employment tax and/or increasing refundable child tax credits.
More from the IRS about Independent Contractor vs Self-Employed persons.
How do I report my self-employment income as common-law employee income?
To report your self-employment income as common-law employee salaried income:
1) Delete your self-employment income entry
2) Select “Foreign Employment Compensation” on the Foreign and Other Income Section
3) Enter your self-employment income as salaried income on the “Foreign Employment Compensation” section when it pops up.
Keep in mind: You need to report your gross income and cannot deduct any business expenses.
Attention! If you receive a 1099-MISC or 1099-NEC, filing as a common-law employee may trigger the IRS to audit you and your employer. Instead, you should talk to your employer to determine if you should be getting a W-2 instead of 1099-MISC/1099-NEC. If your employer disagrees and you are confident you should be classified as a common-law employee, then:
- File Form SS-8 https://www.irs.gov/pub/irs-pdf/fss8.pdf with the IRS directly
- Request that Form 8919 be included in your Federal Tax Return at the Feedback Section to withhold your 1/2 of Social Security Taxes (you will need to be in the Professional Tier)