Taxation: Independent Contractors FAQs

• How do I know if I'm an employee or an independent contractor?
• What factors fall into the behavioral control category?
• What factors fall into the financial control category?
• What factors fall into the "relationship of the parties" category?
• What do I do if I still can't determine whether I'm an employee or an independent contractor after looking at all the evidence?
• What happens if my company incorrectly determines that I'm an independent contractor?
• As an independent contractor, what form do I file with the IRS to report my income?
• How do I pay social security and Medicare tax if I'm an independent contractor?
• Do I have to make quarterly estimated tax payments if I'm an independent contractor?

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Q: How do I know if I'm an employee or an independent contractor?

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• It depends on your relationship with the business. Factors of control and independence will be considered. All relevant evidence will fall into three categories: Behavioral Control, Financial Control and the Relationship of the Parties.

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Q: What factors fall into the behavioral control category?

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• Any factor that shows whether the company you're working for controls what you do and how you do it. In addition, any factor that shows the company has the right to control your work, regardless of whether it does or not.

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Q: What factors fall into the financial control category?

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• Any factor that shows whether the financial or economic aspects of your job are controlled by the company. This can include how you're paid, whether you provide the equipment and whether your expenses are reimbursed.

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Q: What factors fall into the "relationship of the parties" category?

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• Any factor that shows how you and the company view your relationship. This can include any written contracts, whether you receive employee benefits and whether your relationship is considered permanent.

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Q: What do I do if I still can't determine whether I'm an employee or an independent contractor after looking at all the evidence?

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• A: The IRS can help you out. It'll look at all the relevant evidence and determine the question for you. File Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

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Q: What happens if my company incorrectly determines that I'm an independent contractor?

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• The company may have to pay the employment taxes it failed to withhold from your paychecks. In addition, it may be liable for interest and penalties.

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Q: As an independent contractor, what form do I file with the IRS to report my income?

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• A: You can report your income on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship) or on Form 1040, Schedule C-EZ, Net Profit from Business.

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Q: How do I pay social security and Medicare tax if I'm an independent contractor?

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• A: You must pay self-employment tax if you work for yourself. To pay this tax, file Form 1040, Schedule SE, Self-Employment Tax.

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Q: Do I have to make quarterly estimated tax payments if I'm an independent contractor?

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• A: Yes, since no one else is withholding tax payments from your income. Use Form 1040-ES, Estimated Tax for Individuals, to help you determine the amount of your payments.