On July 19, 2004, the Massachusetts Legislature enacted an emergency law that amended chapter 149 of the General Laws. See St. 2004, c. 193, "An Act Further Regulating Public Construction in the Commonwealth" ("Act"). In pertinent part, the Act repealed G.L. c. 149, § 148B, "Employee Status; Exceptions; Penalties" and replaced it with new section 148B. See St. 2004, c. 193, § 26, effective July 19, 2004. The new law affects the classification of employees and independent contractors for purposes of G.L. chs. 149 (Labor and Industries) and 151 (Minimum Fair Wages) and provides criminal and civil penalties for improper classification under these chapters. The Massachusetts Attorney General is responsible for administering the provisions of G.L. c. 149. See G.L. c. 149, § 2. The Commissioner of Revenue is charged with administering the Massachusetts wage withholding laws under chapter 62B. See G.L. c. 14, § 6(1); G.L. c. 62C, § 3.
The purpose of this Technical Information Release is twofold. First, it announces that the amendments to chapter 149, § 148B do not change the statutory definitions of "employer" or "employee" found in chapter 62B of the General Laws. Accordingly, for wage withholding purposes under chapter 62B, the status of workers as employees or independent contractors is governed by section 3401 the Internal Revenue Code and the applicable regulations promulgated pursuant to that provision. This TIR summarizes the differences in the general rules for determining employee/independent contractor status under chapters 149 and 62B. Second, this TIR announces that the Commissioner will accept determinations of employee or independent contractor status, as described in this TIR, by the Internal Revenue Service for purposes of identifying income tax withholding obligations under chapter 62B.
II. Applicable Laws
A. Chapter 149, § 148B (Employer Status; Exceptions; Penalties)
1. Presumption of employee status
Chapter 149, § 148B as amended, creates a presumption that, for purposes of chapters 149 (Labor and Industries) and 151 (Minimum Fair Wage Law), an individual performing any service, except as authorized under G.L. c. 149, shall be considered an employee under those chapters unless a company can establish that each of the following three factors is present:
1. The individual is free from control and direction in connection with the performance of a service, both under the individual's contract for the performance of service and in fact; and
2. The service is performed outside the usual course of business of the employer; and
3. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. See G.L. c. 149, § 148B(a)(1)-(3), inclusive.
2. Penalties for violation of chapter 149
The amendment also provides for various penalties for failure to properly classify individuals according to chapter 149, § 148B. See G.L. c. 149, § 148B(d). Whoever fails to classify individuals in accordance with this section, and in so doing fails to comply with chapter 149 or chapter 151, §§ 1, 1A, 1B, 2B, 15, or 19; or chapter 62B, is subject to all of the criminal and civil remedies, including debarment from public works projects, as provided in G.L. c. 149, § 27C. Furthermore, whoever fails to classify an employee under G.L. c. 149, § 148B, and in so doing violates chapter 152 (Workers' Compensation), is subject to criminal penalties provided in G.L. c. 152, § 14, as well as all of the civil remedies, including debarment, provided in G.L. c. 149, § 27C. Liability for these violations extends to any entity and the president and treasurer of a corporation, and any officer or agent having the management of the corporation or entity. See G.L. c. 149, § 148B(d).
B. Chapter 62B: Withholding of Tax on Wages
1. The Commissioner generally follows federal definitions of employer, employee, and wages
The Massachusetts statute governing income tax withholding of tax on wages is found in G.L. c. 62B. Chapter 62B requires every employer making payment to employees of wages subject to Massachusetts income tax under G.L. c. 62 to deduct and withhold taxes upon such wages. In contrast to G.L. c. 149, § 148B, chapter 62B adopts the federal definitions of "employer" found in section 3401(d) of the Internal Revenue Code, as amended and in effect for the applicable year, the definition of "employee" found in section 3401(c) of the Code, except full time students engaged in seasonal, temporary or part-time employment whose estimated annual income would not exceed two thousand dollars and, with certain modifications as provided in G.L. c. 62B, § 1 (1) , and the definition of "wages" found in section 3401(a) of the Code. See G.L. c. 62B, § 1. Neither chapter 62B nor the federal regulations promulgated pursuant to section 3401(a), (c) and (d) contain a specific definition of "independent contractor." For purposes of distinguishing an employee relationship from other types of relationships (e.g., independent contractor) for withholding purposes, the Commissioner follows federal Treasury regulation § 31.3401(c) - 1. The Internal Revenue Service has issued Rev. Rul. 87-41, which provides guidance in the form of 20 factors that are used to determine whether an employee/employer relationship exists for federal employment tax purposes. These factors, in addition to common law elements of direction and control, are therefore relevant for purposes of determining whether a person is an employer obligated to withhold income tax on the wages of an employee for Massachusetts withholding purposes. These factors are as follows:
1. Worker compliance with instructions required;
3. Integration of worker's services into the business;
4. Services are rendered personally;
5. Ability to hire, supervise, and pay assistants;
6. A continuing relationship;
7. Set hours of work are established;
8. Full time is required;
9. Work performed on business premises;
10. Services performed in a set order or sequence;
11. Oral or written reports required;
12. Payment by the hour, week or month;
13. Payment of business and/or travel expenses;
14. Furnishing of tools and materials;
15. Worker's investment in facilities used in performing services;
16. Worker's realization of a profit or loss;
17. Worker performs services for more than one business at a time;
18. Worker makes services available to the general public;
19. Business has the right to discharge worker; and
20. Worker has the right to terminate the relationship
As a result of differences in determining employee/independent contractor status under the two Massachusetts statutes, the classification of certain persons as employees or independent contractors for purposes of chapter 149 does not govern the status of such persons for purposes of chapter 62B. Moreover, even if a person qualifies as an employee for purposes of chapter 62B, withholding is required, with certain exceptions, only with respect to remuneration for services that qualifies as "wages" paid by an employer under G.L. c. 62B. (2)
2. The Commissioner will accept IRS determinations of worker status for Massachusetts withholding purposes
The Internal Revenue Service issues formal determinations regarding the status of workers as employees and independent contractors for purposes of determining federal withholding obligations. These determinations are made in response to requests submitted on IRS Form SS-8 (Determination of Employee Work Status for Purposes of Federal Employment Tax Obligations). The Commissioner does not issue formal determinations in this area. The Commissioner will accept a copy of that IRS determination and will treat the parties in accordance with that determination for Massachusetts withholding purposes. If a person has not obtained an IRS determination, the person may request one in accordance with the instructions on Form SS-8, which is available on the IRS website. In the absence of an IRS determination, the Commissioner will apply federal law for purposes of determining whether a company must deduct and withhold Massachusetts income taxes from monies paid to its workers.
Commissioner of Revenue
September 13, 2005
1. For Massachusetts withholding purposes, "wages" also include periodic payments and nonperiodic distributions as defined in I.R.C. § 3405 and subject to federal withholding; contributions paid by governmental units and free public libraries on behalf of the employee pursuant to G.L. c. 32, § 22(10) or payment by governmental units for retirement pay of judges pursuant to G.L. c. 32, § 65D(i) and not otherwise included as wages in G.L. c. 62B, § 1.
2. For rules regarding withholding of tax by persons other than employers ( e.g., promoters making payments as compensation for personal services of performers including athletes and entertainers), taxpayers should refer to GL. c. 62B, § 2, as amended by St. 2004, c. 262, § 21. The Commissioner will amend regulation 830 CMR 62B.2.1, Withholding of Taxes on Wages, in 2005 to explain these requirements in further detail.