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Sec. 1402(b). Net earnings from self-employment consist of gross
income derived by an individual from any trade or business
carried on by such individual, less the allowable deductions that
are attributable to such trade or business, plus certain items
not relevant here. Sec. 1402(a). However, the self-employment
tax generally does not apply to compensation paid to an employee
by an employer. Sec. 1402(c)(2) and (3).
Whether an individual is an employee or an independent
contractor in a particular situation is a question of fact that
must be determined through the application of common-law
principles to the circumstances of the situation at hand. Weber
v. Commissioner, 103 T.C. 378, 386-387 (1994), affd. 60 F.3d 1104
(4th Cir. 1995); sec. 31.3401(c)-1(d), Employment Tax Regs.
Section 31.3401(c)-1(b), Employment Tax Regs., defines the
employer/employee relationship as follows:
Generally the relationship of employer and employee
exists when the person for whom services are performed
has the right to control and direct the individual who
performs the services, not only as to the result to be
accomplished by the work but also as to the details and
means by which that result is accomplished. That is,
an employee is subject to the will and control of the
employer not only as to what shall be done but how it
shall be done. In this connection, it is not necessary
that the employer actually direct or control the manner
in which the services are performed; it is sufficient
if he [or she] has the right to do so. The right to
discharge is also an important factor indicating that
the person possessing that right is an employer. Other
factors characteristic of an employer, but not
necessarily present in every case, are the furnishing
of tools and the furnishing of a place to work to the
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Last modified: May 25, 2011