| 18% of people are categorized incorrectly... and | | | | contractor. If you are responsible for purchasing |
| the cost of being wrong can be pretty high! | | | | the tools and materials needed to complete your |
| There is a big difference between an employee | | | | job, you are most likely an independent |
| and an independent contractor when it comes to | | | | contractor. If you will personally realize either a |
| federal taxes. If you are incorrectly categorized | | | | profit or a loss, then you are probably an |
| as an independent contractor when you are | | | | independent contractor. |
| actually an employee, you could pay a lot more | | | | - Type of Relationship - if you receive benefits |
| on April 15th. | | | | (such as health insurance, retirement plans, or paid |
| Employees | | | | leave) from the person or organization you work |
| - As an employee, your employer pays half of | | | | for, then you are most likely an employee. There |
| your FICA and Medicare tax. You pay 7.65% and | | | | may even be a written contract that details the |
| your employer pays 7.65%. | | | | nature of your working relationship, i.e. employer |
| - As for federal income taxes, most employees | | | | and employee or an explicit statement that you |
| elect to have their employers withhold tax from | | | | are an independent contractor. |
| their pay on Form W-4. | | | | What Does it Mean to be Classified as an |
| Independent Contractors | | | | Independent Contractor? |
| - As an independent contractor you pay the | | | | If you are an employee and you are incorrectly |
| entire 15.3% of FICA and Medicare tax (referred | | | | being treated as an independent contractor, your |
| to as "self-employment tax"). | | | | tax bill is going to be much larger than expected. |
| - In addition, independent contractors do not have | | | | On top of being responsible for the entire amount |
| pay automatically withheld for federal income | | | | of FICA and Medicare tax AND having no |
| taxes. They make federal income tax payments, | | | | withholding, you will also be assessed an Estimated |
| or Estimated Tax Payments by sending in Form | | | | Tax Penalty for failing to properly make your |
| 1040ES. | | | | estimated tax payments (even though you may |
| Am I an Employee or Independent Contractor? | | | | not know you needed to make them). |
| The biggest factor in determining if you are an | | | | What Do I Do if I Am Not Sure About my |
| employee or an independent contractor is who | | | | Current Classification, or If I Disagree with My |
| has the control of the result of your work: you or | | | | Current Classification? |
| someone you are working for? If you have the | | | | - The IRS will issue a determination for you if you |
| majority of control, you are most likely an | | | | either disagree with your current classification or |
| independent contractor. However, if the | | | | cannot decide which is the correct classification |
| organization (or person) that you are working for | | | | for you. You will need to file Form SS-8 with the |
| has the majority of control, you are most likely | | | | IRS, in order for them to make a determination |
| an employee. | | | | on your behalf. Once you submit the form, the |
| The IRS specifically looks at the following three | | | | IRS may ask for additional information from both |
| areas of control for determining a worker's | | | | you and whomever you worked for. A technician |
| classification. Here are how some of the factors | | | | will be assigned to the case and will make a |
| could be applied to these areas: | | | | determination based on the facts of the situation |
| - Behavioral Control - if someone else controls | | | | and the law. |
| what work will be done and how the work will be | | | | - It could possibly take six months or more for |
| done, you are most likely their employee. If you | | | | the technician to make the determination - so |
| receive direct instructions from someone else | | | | don't expect a quick turnaround time. While you |
| concerning your work, such as when, where, and | | | | are waiting for a decision, you can file Form 8919 |
| how to do the work; what tools or equipment to | | | | with your federal income tax return, in order to |
| use; or where to purchase supplies and services, | | | | pay your half of the FICA and Medicare taxes. |
| you are most likely an employee. | | | | - If you do not agree with the decision of the |
| - Financial Control - if you have a significant | | | | IRS, you cannot appeal; however, you can |
| financial investment in the work you perform | | | | request that the office reconsider the decision if |
| (including assets or tools you need to complete | | | | you have additional information that was not |
| the job), you are most likely an independent | | | | previously included. |