How will a licensee with a written contract stating they will not be treated like an employee be classified by the IRS?

The classification of a licensee with a written contract stating they will not be treated like an employee aligns with the criteria for independent contractors as defined by the IRS. An independent contractor is typically a person or entity hired to perform a specific task, and they operate under their own business methods without being subject to significant control from the hiring party, apart from achieving the contractual outcome.

When a written agreement explicitly states that the individual will not be treated as an employee, it indicates that the relationship is meant to reflect that of an independent contractor. This classification comes with distinct tax implications: independent contractors are responsible for their own taxes, do not receive employee benefits, and have more flexibility in managing their work schedules and methods of operation.

The IRS applies specific tests, such as behavioral, financial, and type of relationship, to determine if someone is an employee or an independent contractor. A clear indicator of independent contractor status is the level of control exercised over the individual’s work, which is less in the case of independent contractors than in that of employees. Therefore, the presence of a contract reinforcing this non-employee status is key in classifying the licensee accordingly.