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Reasonable Basis Test

Has anyone here successfully utilized this test to get relief from federal witholding?


  • Honestly this is the one part of HR/payroll that I have been very prickly with over the years. In my mind, there are no gray areas. If there is a question, we always lean to conservative and calling an employee..... In 12 years, averaging 70-100 employees a year, we have had exactly 3 ICs. With written contracts, specific time period to do the project and none have ever then been hired as an employee after the project ended. Two of our businesses are in industries where it is common to misuse the IC classification.

    The best way to stay out of "need for relief" is to not cross the line in the first place. That's always been my motto with payroll -- and in 12 years, I have never had a wage claim and very few corrections to 941/940/W-2s.

    Now I am lucky that I have the HR influence that is trusted at our set of companies to just say no and to tell the reasons and the risks. I doubt many in the payroll part of the company do.

  • I worked at a very large place you all have heard of. Me (payroll), HR, and Purchasing used to view all new vendor setups that were not corporations (per the W-9). If we did not agree on the classification, we brought in a big SF law firm in as the tie breaker. We had a strange setup physically where Payroll of all people had to enter all new vendors for Purchasing. Both AP and PR reported to me, and it was cleaner from an audit standpoint to have PR tasked. And we NEVER made a payment to anyone without a valid W-9 received first. Fortunately for me, this had blown up big time with IRS prior to me getting hired (created the job opening actually), and HR and Purchasing had zero leverage with Very Senior Management on this point. And like Ruth said, if you are not sure, it is an employee.

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