Determination of worker classification

(a)

In general

Chapter 79 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

7706.

Determination of worker classification

(a)

In general

For purposes of this title (and notwithstanding any provision of this title not contained in this section to the contrary), if the requirements of subsections (b), (c), and (d) are met with respect to any service performed by a service provider, then with respect to such service— (1)the service provider shall not be treated as an employee, (2)the service recipient shall not be treated as an employer, (3)any payor shall not be treated as an employer, and (4)the compensation paid or received for such service shall not be treated as paid or received with respect to employment. (b)

General service provider requirements

(1)

In general

The requirements of this subsection are met with respect to any service if the service provider either— (A)meets the requirements of paragraph (2) with respect to such service, or (B)in the case of a service provider engaged in the trade or business of selling (or soliciting the sale of) goods or services, meets the requirements of paragraph (3) with respect to such service. (2)

General requirements

(A)

In general

The requirements of this paragraph are met with respect to any service if the service provider, in connection with performing the service— (i)incurs expenses— (I)which are deductible under section 162, and (II)a significant portion of which are not reimbursed, (ii)agrees to perform the service for a particular amount of time, to achieve a specific result, or to complete a specific task, and (iii)satisfies not less than one of the factors described in subparagraph (B). (B)

Factors

The factors described in this subparagraph are the following: (i)The service provider has a significant investment in assets or training which are applicable to the service performed. (ii)The service provider is not required to perform services exclusively for the service recipient or payor. (iii)The service provider has not been treated as an employee by the service recipient or payor for substantially the same services during the 1-year period ending with the date of the commencement of services under the contract described in subsection (d). (iv)The service provider is not compensated on a basis which is tied primarily to the number of hours actually worked. (3)

Alternative requirements with respect to sales persons

In the case of a service provider engaged in the trade or business of selling (or soliciting the sale of) goods or services, the requirements of this paragraph are met with respect to any service provided in the ordinary course of such trade or business if— (A)the service provider is compensated primarily on a commission basis, and (B)substantially all the compensation for such service is directly related to sales of goods or services rather than to the number of hours worked. (c)

Place of business or own equipment requirement

The requirement of this subsection is met with respect to any service if the service provider— (1)has a principal place of business, (2)does not provide the service primarily in the service recipient’s place of business, (3)pays a fair market rent for use of the service recipient’s or payor's place of business, or (4)provides the service primarily using equipment supplied by the service provider. (d)

Written contract requirement

The requirements of this subsection are met with respect to any service if such service is performed pursuant to a written contract between the service provider and the service recipient or payor, whichever is applicable, which meets the following requirements: (1)The contract includes each of the following: (A)The service provider’s name, taxpayer identification number, and address. (B)A statement that the service provider will not be treated as an employee with respect to the services provided pursuant to the contract for purposes of this title. (C)A statement that the service recipient or payor will withhold upon and report to the Internal Revenue Service the compensation payable pursuant to the contract consistent with the requirements of this title. (D)A statement that the service provider is responsible for payment of Federal, State, and local taxes, including self-employment taxes, on compensation payable pursuant to the contract. (E)A statement that the contract is intended to be considered a contract described in this subsection.

The contract shall not fail to meet the requirements of this paragraph merely because the information described in subparagraph (A) is collected at the time payment is made for the services and not in advance, or because the contract provides that an agent of the service recipient or payor will fulfill any of the responsibilities of the service recipient or payor described in the preceding subparagraphs.

(2)The term of the contract does not exceed 2 years. The preceding sentence shall not prevent one or more subsequent written renewals of the contract from satisfying the requirements of this subsection if the term of each such renewal does not exceed 2 years and if the information required under paragraph (1)(A) is updated in connection with each such renewal. (3)The contract (or renewal) is signed (which may include signatures in electronic form) by the service recipient or payor and the service provider not later than the date on which the aggregate payments made by the service recipient or payor to the service provider exceeds $1,000 for the year covered by the contract (or renewal). (e)

Reporting requirements

(1)

In general

For purposes of making any determination with respect to the liability of a service recipient or payor for any tax during any taxable year with respect to a service provider, the application of this section shall be conditioned on either the service recipient or the payor satisfying the reporting requirements applicable to such service recipient or payor under section 6041(a), 6041A(a), or 6050W with respect to such service provider for such period. (2)

Reasonable cause

For purposes of paragraph (1), such reporting requirements shall be treated as met if the failure to satisfy such requirements is due to reasonable cause and not willful neglect. (f)

Exception for services provided by owner

This section shall not apply with respect to any service provided by a service provider to a service recipient or payor if the service provider owns any interest in the service recipient or the payor with respect to the service provided. The preceding sentence shall not apply in the case of a service recipient or payor the stock of which is regularly traded on an established securities market. (g)

Limitation on reclassification by Secretary

For purposes of this title— (1)

Effect of reclassification on service recipients and payors

A determination by the Secretary that a service recipient or a payor should have treated a service provider as an employee shall be effective with respect to the service recipient or payor no earlier than the notice date if— (A)the service recipient or the payor entered into a written contract with the service provider which meets the requirements of subsection (d), (B)the service recipient or the payor satisfied the applicable reporting requirements of section 6041(a), 6041A(a), or 6050W for all relevant taxable years with respect to the service provider, (C)the service recipient or the payor collected and paid over all applicable taxes imposed under subtitle C for all relevant taxable years with respect to the service provider, and (D)the service recipient or the payor demonstrates a reasonable basis for having determined that the service provider should not be treated as an employee under this section and that such determination was made in good faith. (2)

Effect of reclassification on service providers

A determination by the Secretary that a service provider should have been treated as an employee shall be effective with respect to the service provider no earlier than the notice date if— (A)the service provider entered into a written contract with the service recipient or the payor which meets the requirements of subsection (d), (B)the service provider satisfied the applicable reporting requirements of sections 6012(a) and 6017 for all relevant taxable years with respect to the service recipient or the payor, and (C)the service provider demonstrates a reasonable basis for determining that the service provider is not an employee under this section and that such determination was made in good faith. (3)

Notice date

For purposes of this subsection, the term notice date means the 30th day after the earliest of— (A)the date on which the first letter of proposed deficiency which allows the service provider, the service recipient, or the payor an opportunity for administrative review in the Internal Revenue Service Office of Appeals is sent, (B)the date on which a deficiency notice under section 6212 is sent, or (C)the date on which a notice of determination under section 7436(b)(2) is sent. (4)

Reasonable cause exception

The requirements of paragraphs (1)(B), (1)(C), and (2)(B) shall be treated as met if the failure to satisfy such requirements is due to reasonable cause and not willful neglect. (5)

No restriction on administrative or judicial review

Nothing in this subsection shall be construed as limiting any provision of law which provides an opportunity for administrative or judicial review of a determination by the Secretary. (h)

Rule of construction

Nothing in this section shall be construed as— (1)limiting the ability or right of a service provider, service recipient, or payor to apply any other provision of this title, section 530 of the Revenue Act of 1978, or any common law rules for determining whether an individual is an employee, or (2)establishing a prerequisite for the application of any provision of law described in paragraph (1). (i)

Definitions

For purposes of this section— (1)

Service provider

(A)

In general

The term service provider means any qualified person who performs service for another person. (B)

Qualified person

The term qualified person means— (i)any natural person, or (ii)any entity if any of the services referred to in subparagraph (A) are performed by one or more natural persons who directly own interests in such entity. (2)

Service recipient

The term service recipient means the person for whom the service provider performs such service. (3)

Payor

The term payor means— (A)any person, including the service recipient, who pays the service provider for performing such service, or (B)any marketplace platform, as defined in section 6050W(d)(3)(C). (j)

Regulations

Notwithstanding section 530(d) of the Revenue Act of 1978, the Secretary shall issue such regulations as the Secretary determines are necessary to carry out the purposes of this section.

(b)

Voluntary withholding agreements and worker classification

Section 3402(p) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

(4)

Worker classification

Agreements under paragraph (3) shall not be taken into account in determining whether any party to such agreement is an employee or an employer for purposes of this title.

(c)

Withholding by payor in case of certain persons classified as not employees

Section 3402 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(u)

Extension of withholding to payments to certain persons classified as not employees

(1)

In general

For purposes of this chapter and so much of subtitle F as relates to this chapter, compensation paid pursuant to a contract described in section 7706(d) shall be treated as if it were a payment of wages by an employer to an employee. (2)

Amount withheld

Except as otherwise provided under subsection (i), the amount to be deducted and withheld pursuant to paragraph (1) with respect to compensation paid pursuant to any such contract during any calendar year shall be an amount equal to 5 percent of so much of the amount of such compensation as does not exceed $20,000.

(d)

Direct sellers of promotional products

Subsection (b) of section 3508 of the Internal Revenue Code of 1986 is amended— (1)in paragraph (2)(A)— (A)in clause (ii), by striking or at the end; (B)in clause (iii), by adding or at the end; and (C)by inserting after clause (iii) the following new clause:

(iv)is engaged in the trade or business of selling, or soliciting the sale of, promotional products from other than a permanent retail establishment,

;

(2)by redesignating paragraph (3) as paragraph (4); and (3)by inserting after paragraph (2) the following new paragraph:

(3)

Promotional product

For purposes of paragraph (2)(A)(iv), the term promotional product means a tangible item with permanently marked promotional words, symbols, or art of the purchaser.

(e)

Reporting

(1)

Information at source

Section 6041 of the Internal Revenue Code of 1986 is amended— (A)in subsection (a)— (i)in the heading, by striking

$600

and inserting

$1,000

; and (ii)by striking $600 or more in any taxable year and inserting $1,000 or more in any taxable year; and (B)by adding at the end the following new subsection:

(h)

Special rules for certain persons classified as not employees

(1)

In general

In the case of any service recipient or payor required to make a return under subsection (a) with respect to compensation to which section 7706(a) applies— (A)such return shall include— (i)the aggregate amount of such compensation paid to each person whose name is required to be included on such return, (ii)the aggregate amount deducted and withheld under section 3402(s) with respect to such compensation, and (iii)an indication of whether a copy of the contract described in section 7706(d) is on file with the service recipient or payor, and (B)the statement required to be furnished under subsection (d) shall include the information described in subparagraph (A) with respect to the service provider to whom such statement is furnished. (2)

Definitions

Terms used in this subsection which are also used in section 7706 shall have the same meaning as when used in such section.

(2)

Returns regarding payments of remuneration for services and direct sales

Section 6041A of such Code is amended— (A)in paragraph (2) of subsection (a), by striking $600 and inserting $1,000; and (B)by adding at the end the following new subsection:

(g)

Special rules for certain persons classified as not employees

Rules similar to the rules of subsection (h) of section 6041 shall apply for purposes of this section.

(3)

Returns relating to payments made in settlement of payment card and third party network transactions

Section 6050W of such Code is amended— (A)in subsection (d), by amending paragraph (3) to read as follows:

(3)

Third party payment network

(A)

In general

The term third party payment network means any agreement or arrangement— (i)which involves the establishment of accounts with a central organization or marketplace platform by a substantial number of persons who— (I)are unrelated to such organization or platform, (II)provide goods or services, and (III)have agreed to settle transactions for the provision of such goods or services pursuant to such agreement or arrangement, (ii)which provides for standards and mechanisms for settling such transactions, and (iii)which guarantees persons providing goods or services pursuant to such agreement or arrangement that such persons will be paid for providing such goods or services. (B)

Exception

The term third party payment network shall not include any agreement or arrangement which provides for the issuance of payment cards. (C)

Marketplace platform

For purposes of subparagraph (A), the term marketplace platform means any person who— (i)operates a digital website, mobile application, or similar system that facilitates the provision of goods or services by providers to recipients, (ii)enters into an agreement with each provider stating that such provider will not be treated as an employee with respect to such goods or services, (iii)provides standards and mechanisms for settling such facilitated transactions, and (iv)guarantees each provider of goods or services pursuant to such agreement that the provider will be paid for such facilitated transaction.

;

(B)by amending subsection (e) to read as follows:

(e)

Exception for de minimis payments by third party settlement organizations

(1)

In general

A third party settlement organization shall be required to report any information under subsection (a) with respect to third party network transactions of any participating payee only if the amount which would otherwise be reported under subsection (a)(2) with respect to such transactions exceeds $1,000. (2)

Exception

(A)

Marketplace platforms

In the case of a third party settlement organization which is a marketplace platform (as defined in subsection (d)(3)(C)) through which substantially all the participating payees are primarily engaged in the sale of goods, such marketplace platform shall be required to report any information under subsection (a) with respect to third party network transactions of such payee only if— (i)the amount which would otherwise be reported under subsection (a)(2) with respect to such transaction exceeds $5,000, or (ii)the aggregate number of transactions exceeds 50. (B)

Other third party settlement organizations

In the case of a third party settlement organization other than a marketplace platform— (i)the rules of subparagraph (A) shall apply in the case of information required to be reported, or which would otherwise be reported, under subsection (a) to any participating payee who is primarily engaged in the sale of goods, and (ii)the determination of whether a participating payee is primarily engaged in the sale of goods may be made separately for each participating payee. (3)

Election to report

Notwithstanding paragraphs (1) and (2), a third party settlement organization may elect to report any information under subsection (a) with respect to third party network transactions of any participating payee without regard to the amount reported under subsection (a)(2) with respect to such transactions or the aggregate number of such transactions.

; and

(C)in subsection (f)— (i)in paragraph (1), by striking and at the end; (ii)in paragraph (2), by striking the period at the end and inserting , and; and (iii)by inserting after paragraph (2) the following new paragraph:

(3)the amount, if any, withheld pursuant to section 3402(s).

(f)

Proceedings for determination of employment status

Paragraph (1) of section 7436(b) of the Internal Revenue Code of 1986 is amended to read as follows:

(1)

Petitioner

A pleading may be filed under this section only by— (A)the person for whom the services are performed, including the service recipient or the payor, or (B)any service provider which the Secretary has determined should have been treated as an employee.

All terms used in this paragraph which are also used in section 7706 have the meanings given such terms in section 7706(i).

(g)

Clerical amendment

The table of sections for chapter 79 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

Sec. 7706. Determination of worker classification.

(h)

Effective date

(1)

In general

Except as provided in paragraphs (2), (3), and (4), the amendments made by this section shall apply to services performed after December 31, 2019 (and to payments made for such services after such date). (2)

Grace period to begin withholding

A contract shall not be treated as failing to meet the requirements of section 7706(d)(1)(C) of the Internal Revenue Code of 1986 (as added by this section), and a service recipient or payor shall not be treated as failing to meet any such requirement, with respect to compensation paid to a service provider before the date that is 180 days after the date of the enactment of this Act. (3)

Reporting

Except as provided in paragraph (4), the amendments made by subsection (e) shall apply to returns the due date for which is after the date which is 2 years after the date of the enactment of this Act. (4)

Exception for de minimis payments by third party settlement organizations

The amendment made by subsection (e)(3)(B) shall apply to payments made after December 31, 2019.