Learn the basics about classifying a new worker as an employee or an independent contractor.
Deciding if you can hire someone as an employee or independent contractor is a big decision. It impacts taxes, what you need to do for payroll, and more. The government has a lot of rules around this, but here is a basic overview and some links that may help you.
Is my worker an employee or independent contractor?
Generally, employers have more control over an employee. This is because independent contractors like 1099 contractors, freelancers, and self-employed workers are in business for themselves.
Note: If you need help determining if your worker is a contractor or employee, please contact an accounting or legal professional.
Here are some helpful guidelines:
If your worker is an employee, an employer must:
- Withhold payroll taxes like income and Social Security taxes.
- Match the employee's Social Security and Medicare taxes.
- Pay federal and state unemployment taxes on employee earnings.
- Issue a Form W-2 after the end of the year.
If your worker is an independent contractor, an employer:
- Is not required to withhold any payroll taxes like income and Social Security taxes.
- Does not match the Social Security and Medicare taxes.
- Does not pay federal and state unemployment on employee earnings.
- Sends a form 1099-MISC after the end of each year.
How you should classify a worker is determined by the IRS. Use this IRS website guidelines to determine your worker classification: Independent Contractor (Self-Employed) or Employee?
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