Independent Contractor or Employee?

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on employee wages. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Generally, whether a worker is an employee or an independent contractor depends upon how much control you have as a business owner. The IRS uses here broad categories to determine this: behavioral control, financial control, and the type of relationship. Publication 1779Independent contractor or Employee, provides guidance. If, after reviewing these categories, the determination remains unclear, you make file Form SS-8Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding and the IRS will determine the worker’s status.

If you have an independent contractor, you may be required to issue Form 1099-MISC for payments totaling $600 or more in a calendar year. Form W-9, Request for Taxpayer /Identification Number and Certification, may be used to obtain the payee’s taxpayer identification number and to certify that no backup withholding is required. For more information, go to www.irs.gov and search: Independent Contractor.

Other resources: Publication 15Circular E, Employer’s Tax Guide, and Publication 15-AEmployer’s Supplemental Tax Guide.