Why do I state this?
Because the people of this nation have been conditioned to believe that employment (working for someone else) is the equivalent of providing a service. It is not.
This is where Ron Paul can win over the working people of this country, by showing that businesses have been giving away a portion of their paychecks to the government for the last 70 years.
This knowledge will have a dramatic impact on the Accounting industry, as well as, the Retirement Financial industry.
This from a Human Resources site on the internet:
Employment Status – Employed or Self-employed?
What is the difference between a “contract of service” and a “contract for services”?
These are common-law terms used to distinguish employees from persons who are self-employed.
The term:
-“contract of service” relates to a person in employment (as in the case of a domestic servant who is described as being “in service”.)
-“contract for services” relates to a person who is self-employed and who provides services to clients.
The term “contract of service” is referred to in employment and tax legislation. A person who works under a contract of service is:
-an “employee” for payroll purposes, and
-an “employee” for employment rights purposes, and
-a “worker” for other employment rights purposes.
In contrast, a person who works under a contract for services,
i.e. a self-employed person, is neither an employee nor a worker. There is no requirement for an employer to put such a person on the payroll; rather payment may be made on invoice. There is no entitlement to any of the employment rights available to employees and workers.
How, then, are these terms to be distinguished? Traditionally, there are two key tests to identify an employee,
i.e. a person who works under a “contract of service”.
These include:
-“mutuality of obligation”,
i.e. both parties to the contract have obligations to each other, the employee to perform the work as directed, the employer to pay for the work performed.
-the “degree of control” exercised by the employer over the work performed by the employee.
Other factors, however, have been taken into consideration when courts and tribunals have endeavored to distinguish between employment and self-employment.
These include:
-whether the individual must perform the work personally, or is able to send a qualified substitute.
-the nature of the pay and benefits that are provided by the employer.
-whether or not the individual has a business structure.
-who decides on how the contract should be performed.
-the extent of the financial risk borne by the individual.
-who provides the materials and equipment necessary for the work.
The duration of the contract is also important, the longer the engagement, the more likely it is that the relationship is employment.
Another simple way of distinguishing employment from self-employment is to consider what it is that the employer is “buying”:
-if the employer is “buying” an employee, there will be a lengthy recruitment process in order to find just the right person.
-if the employer is “buying” a service, the person who will provide the service is likely to be selected by recommendation or simply by choosing an ad in the Yellow Pages.
The Internal Revenue Service has a form which is used for this purpose.
(Form SS-8, Determination of Worker Status)
This form is used to determine who is liable for the employer side of the Social Security and Medicare taxes, if either side questions who is liable.
If we go to the Internal Revenue Code (Title 26) we will find the following definitions, laid out in the Social Security Act of 1935.
TITLE 26 >
Subtitle C >
CHAPTER 21 >
Subchapter C > § 3121
§ 3121. Definitions
(a) Wages
For purposes of this chapter, the term “wages” means all remuneration for
employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash;
(b) Employment
For purposes of this chapter, the term “employment” means any service,
of whatever nature, performed
Here we see that employment is defined as service, of whatever nature, thus either performing service (employment) or performing a service (self-employment) is liable to this taxation.
Now, we come to the crux of the matter.
In 1942, Congress passed the Current Tax Payment Act to collect federal income tax at source on wages. Let’s go to the Internal Revenue Code (Title 26) to find this definition from that Act.
TITLE 26 >
Subtitle C >
CHAPTER 24 > § 3401
§ 3401. Definitions
(a) Wages
For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for
services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash;
Here we see that wages is not defined by employment, but by services.
As discussed earlier, employment (labor) is not a service. An employee is “in service” to his employer, he does not “provide a service or services” to his employer. An employee may perform services for the employer, but it should be clearly understood that these services are those provided by the employer to his customers.
All remuneration paid
expressly for employment, such as hourly wages do not fall under the scope of this definition of wages.
On the other hand, when an employer provides a service or services to his clients, it is an employee who will perform this service. Now if the employee is paid compensation based on the performance of this service or services, usually in the form of a commission, a fee, and/or a tip, then the employee has received remuneration for services and this compensation is fully within the scope of this definition of wages.
Also an employee may receive fringe benefits, such as paid insurance, access to recreational facilities, sick leave, paid holidays and vacation, profit-sharing plans, year-end bonuses, etc. All these are funded through the profits of the employer and therefore fall under remuneration for services and are fully within the scope of this definition of wages.
However, holidays, vacation, sick leave and year-end bonuses may be paid in the form of an hourly wage. This does not make all hourly wages subject to, nor does it relieve fringe benefits from, the scope of this definition of wages.
Federal Income Tax
Section 61 of the Internal Revenue Code, also supports what I have stated.
TITLE 26 >
Subtitle A >
CHAPTER 1 >
Subchapter B >
PART I > § 61
§ 61. Gross income defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
Compensation for
services, including
fees,
commissions,
fringe benefits, and similar items;
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