There is a lot of confusion over how to determine whether one is an independent contractor or an employee. Here are some criteria that will help clear it up.
You’re an Independent Contractor if you:
- Set your own hours
- Use your own equipment, tools, and products
- Choose who you’re going to work with
- Can choose when and how to work
- Pay your own Federal and State withholdings
- Have completed a Form W-9, Request for Taxpayer Identification Number and Certification
- Are paid by a 1099-MISC form
- Are able to hire, supervise, and pay assistants
- Have a business license
You’re an Employee if you:
- Have an employer who dictates the hours you work
- Are provided the tools and supplies needed to work
- Must comply with where and how to work
- Have clients scheduled for you
- Have Federal and State taxes withheld
- Receive a W-2 form
- Can quit at any time without incurring liability
- Are trained by the employer
- Have employee-type benefits, such as a pension plan, insurance, vacation and sick days
As an independent contractor, if you are paid $600 or more for your services during the year, a form 1099-MISC needs to be completed, and a copy of 1099-MISC must be provided to you by January 31 of the year following payment.
As an employee, certain taxes are withheld from your paycheck: Federal, State, Social Security, Medicare.
Be aware that according to the Internal Revenue Service, if an employer classifies an employee as an independent contractor, yet dictates that the independent contractor abide by “employee” guidelines, they may be held liable for all taxes for that worker.
If you’re still unclear as to whether you can classify yourself as an independent contractor or an employee, you can call the IRS at (800) 829-1040. Ask for form # SS-8, which is the Determination of Employee Work Status Form.
Tiffany Buczek is a freelance writer and licensed esthetician living in Southern CA.