CCA 200224008: Worker status determines whether pay goes on Form W-2 or Form 1099-MISC

Plain-English summary

A field office asked how to report payments to professionals who received both wages and other compensation from the same payer. Chief Counsel advised that the correct form depends on the worker's status for the particular service. Employee compensation is reported on Form W-2; independent contractor compensation is reported on Form 1099-MISC, subject to the stated $600 threshold. A person can be an employee for one service and an independent contractor for another, so the office could not give a single rule for all the professionals described.

Ruling snapshot

• Question: Should a payer report all compensation to a professional on Form W-2 rather than Form 1099-MISC?
• Outcome: Advice given; determine employee or contractor status for each service.
• Key authorities: IRC §§ 6041, 6051; Treas. Reg. §§ 1.6041-1(a)(2), 31.6051-1(a)(1); Rev. Rul. 58-505.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
I N T E R N AL R E V E N U E S E R V I C E WASHINGTON, D.C. 20224

March 31, 2000

Number: 200224008
Release Date: 6/14/2002
WTA-N-104340-00
UILC: 6051.00-00, 6041.00-00

MEMORANDUM FOR PATRICE SADOWSKI
New Jersey District

FROM: Patricia McDermott
Senior Technician Reviewer
CC:EBEO:Br.2

SUBJECT: Classification of attorneys and engineers

This is in response to your request for advice on whether compensation paid to professionals, such as attorneys and engineers, should be reported on Form W-2 rather than on Form 1099-MISC. You describe the situation where a professional receives a Form W-2 for some of the compensation from a particular entity and a Form 1099 for other compensation from the same entity.

The proper form for reporting compensation depends on the worker’s status. That is, amounts paid to an employee are reported on Form W-2; amounts paid to a worker who is not an employee are reported on Form 1099-MISC, subject to a $600 threshold. See
§ 31.6051-1(a)(1) and § 1.6041-1(a)(2).

Whether a worker is an employee or independent contractor depends on the facts and circumstances of the particular case. See “Independent Contractor or Employee?” Training 3320-102 (Rev. 10-96) TPDS 842381. Therefore it is not possible to provide an across-the-board answer as to whether compensation should be reported on Form W-2 rather than on Form 1099 in the situations you describe. In addition, it is possible for a worker to have a dual status, that is, to be an employee with respect to one type of service and the compensation for that service, while being an independent contractor with respect to another type of service and the compensation for that service. See Rev. Rul. 58-505, 1958-2 C.B. 728, and page 2-5 of “Independent Contractor or Employee?”

In summary, it is necessary to determine whether compensation paid to a worker is compensation for service as an employee or compensation for service as an independent contractor. Once that is determined, compensation for service as an employee is reported on Form W-2, and compensation for service as an independent contractor is reported on Form 1099-MISC.

I hope this information is helpful to you.