What test does the IRS use to distinguish between an independent contractor and an employee?

The IRS uses the Control and Direction Test to determine whether a worker is classified as an independent contractor or an employee. This test focuses on the degree of control that an employer has over the work being done. The main consideration is whether the employer can dictate what work is done and how it is accomplished. If the employer exercises significant control over the worker’s activities, including directives on how tasks should be performed, the worker is more likely to be considered an employee. Conversely, if the worker has the independence to determine how to perform their tasks and uses their own methods, they are likely to be classified as an independent contractor.

The Control and Direction Test encompasses several factors that assess the nature of the relationship between the employer and the worker, including the degree of supervision, the investment in tools and equipment, the opportunity for profit or loss, and the length of time the services are to be performed.

In contrast, the other options do not accurately reflect the primary criteria used by the IRS. For instance, the Performance Evaluation Test focuses on outcomes rather than the control aspect of the relationship, while the Employment Status Test and Contractual Agreement Test might consider different aspects of the work relationship but do not encapsulate the key factor of control that the IRS primarily relies