Independent Contractor

The tax law covering independent contractors is not simple. There are numerous factors which impact the way the IRS will view your case concerning independent contractor/employee relationship. As you may already know, employers are required to withhold income tax, withhold and send payment of both Social Security and Medicare tax, and pay unemployment taxes on employee wages. In the case of independent contractors, the employer generally does not withhold or pay taxes on compensation paid to independent contractors.

Determination of the status of a worker, independent contractor vs. employee, requires that any and all information that can help quantify the level of control and independence the worker has in performance of official duties must be considered. Word of Caution: if employees are classified incorrectly as independent contractors, the employer can be liable for employees' employment taxes as well as penalties.

You are an Independent Contractor:
In general, the payer has the right to control or direct only the result of the work done by an independent contractor, but not the means and methods of accomplishing the result.

This broad rule has a lot of gray areas which is open to interpretation and there are numerous other factors which the IRS will consider before coming to their determination. Finding the right classification involves detailed analysis of the relationship between the parties focusing on evidence of the degree of control and degree of independence including behavioral control and financial control.

You are an Employee:
In general, persons performing a service for you are considered employees if you control tasks to be performed and methodology used.

In addition, certain workers, even if they fit the definition of an independent contractor are considered Employees (eg. life insurance sales agent, delivery drivers of certain food products and certain home based workers).

If you have any questions concerning your particular case please do not hesitate to contact us.

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