Are you an Employee or Independent Contractor? Here’s Why You Need to Know

Are you an Employee or Independent Contractor? Here’s Why You Need to Know

Oftentimes, businesses are hiring employees and handing them 1099 Forms to save themselves money. They don’t have to pay their share of the taxpayer’s social security, nor do they have to pay their Medicare (7.65% of the gross pay) or federal unemployment tax ($42 per person). They also get to skip out on the state “re-employment” tax (as much as $189 per person). The independent contractor then has to get their own liability insurance and the employer does not have to provide benefits.

If you are an independent contractor, instead of getting money in your tax return (like an employee), you must PAY for income tax and self-employment tax (this is an extra 15.3% tax). This could be a big hit on your income.

Which is okay if you ARE an independent contractor, but you could actually save or earn money back if you are an employee. Can you hire yourself out to your employer’s competitor? Can you substitute someone else if you cannot work that day/week/etc? Does your “employer” tell you where to go, when to go to work and give you the tools to do your job? If so, you are probably actually an employee.

What’s the difference?

  • Employee: Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control how the services are performed.
  • Independent Contractor: The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

If you or anyone you know is in this situation, there are options. If you are the employer and want to go this route to save money, call us first and let’s discuss. The IRS scrutinizes these things more than income taxes.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent, a Certified Tax Resolution Specialist and Advanced Crypto Tax Expert.
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Author of the Now What? Help! series. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The books are available in paperback and eBook on Amazon.

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For more on SFS Tax & Accounting, visit: http://sfstaxacct.com/
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738 Colorado Avenue Stuart, FL 34994
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Phone: 772-337-1040
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