Need to make changes or updates to your accounts or subscriptions? Visit the Account Management Page
QuickBooks HelpQuickBooksHelpIntuit

Understand the difference between employees and independent contractors

SOLVEDby QuickBooksIntuit Online Payroll220Updated January 27, 2022

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?

Ready to set up a contractor?

See How to set up contractors and track them for 1099s in QuickBooks.

Note: This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.

Was this helpful?

You must sign in to vote, reply, or post
Intuit Online Payroll AccountantIntuit Online Payroll EnhancedIntuit Online Payroll Full ServiceQuickBooks Online Payroll CoreQuickBooks Online Payroll EliteQuickBooks Online Payroll Premium

Sign in for the best experience

Ask questions, get answers, and join our large community of QuickBooks users.

More like this