09/21/2026
If a contract says "independent contractor" but the working relationship looks like employment, the IRS will read the relationship, not the contract.
Federal tax law uses a three-part test to classify workers: behavioral control, financial control, and type of relationship. No single factor is automatically controlling, and the label the parties use is not one of them.
Getting this wrong costs more than just back taxes. It means owing the employer's AND the employee's share of F**A, a portion of income tax withholding, failure-to-deposit penalties, and interest. For multiple workers across multiple years, that adds up fast.
There is also a 1099-NEC threshold update most payroll teams may have missed: for payments made after December 31, 2025, the reporting threshold is $2,000, not $600.
We just published a full breakdown of how the IRS classifies workers, what each factor actually means, and what options exist if reclassification is needed; check it out! https://journeypayrollhr.com/resources/blog/