Published: 2/3/2025
As informational tax forms start flowing in, you are reminded to review the forms and determine the correctness of the form. One of the keys is whether your employer (or contractor) sends you the correct form. Getting it wrong could cost you plenty in the way of Social Security, Medicare taxes, and other employment-related taxes. Here is what you need to know.
The basics
As a contractor. If you are the worker and you are not considered an employee you must:
As an employer. You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to:
Determining the answer: Things to consider
Usually in determining whether you are an independent contractor or an employee, state and federal authorities look at the business relationship between the employer and you, the worker. The IRS focuses on the degree of control exercised by the business over the work done, and they will assess your level of independence. Here are some tips.
Don’t forget your obligations
With so many workers now in the contractor ranks, it is important to stay on top of your tax filing obligations. With 15.3% of your income due for Social Security and Medicare taxes, forgetting to pay this can quickly become a financial nightmare.
While there are no hard set rules, the more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be challenged by the IRS. But beware, states are trying to constantly move contractors into the ranks of employees, all of which can cause havoc as companies and workers try to understand the changes these initiatives create.
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