Employee or Independent Contractor?

by David McCarthy

As a rule an employer must withhold federal income tax, withhold and pay social security (FICA) and Medicare taxes, and pay unemployment tax (FUTA) on wage paid to an employee; but need not withhold or pay any federal taxes on payments to independent contractors.

The key to distinguishing an employee from an independent contractor is the degree or extent to which the employer has the right to control what will be done and how it will be done.

The price of guessing wrong can be a steep one.

One way to reduce or eliminate the risk is to ask the Internal Revenue Service for a determination. This is done by submitting IRS form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.