It had to happen . . .
Sooner or later there had to be a new tax ruling that had unintended consequences.
Here’s what happened: The rumor mill started grinding the grist of the who’s an Independent Contractor (a.k.a.: self-employed) and who’s an Employee under the new IRS Tax Code.
The old rules were very clear on this topic, even if the adherence to and enforcement of the rules were sketchy.
In the past, most Independent Contractors relied on their customers, the businesses that paid them, to decide. And with a few exceptions, this worked.
Now, there’s some new language in the tax code and it may have unintended consequences for those of us in the fastest-growing self-employment segment.
The gist of the language says that if, as an Independent Contractor, all of your income comes from one client/company, you are an employee of said client/company.
For example: If you’re an accountant and only serve one client, under the new code, you may not be self-employed, you could be “reclassified” by the IRS as an Employee.
As interesting as that could be for many professional service providers, the big pool of potential reclassification from business owner to employee might be in the fast-growing “sales/team-building” world of multilevel marketing.
Here’s the question: If you are associated with a single network marketing / direct sales / relationship marketing / MLM-type organization, is all of your business income coming from one company?
Would that, under the new code, make you an Employee?
No one knows the answers to these questions yet because this new language hasn’t been challenged in the courts.
I’m pretty sure it will be, and in the not too distant future, because the way it stands now, an Independent Contractor today, could be an Employee tomorrow.