How the Tax Man Views Contractors and Employees

In the example that one gets to work during the holidays, it is important to be to ensure that one does not end up paying more than what was originally expected to the tax Service.

Most businesses are now employing people as independent contractors and not as employees. When an individual is engaged as an employee, he/ she will be required to pay income, Medicare, and Social Security taxes, collectively known as FICA, which is deducted from one’s pay slip by payroll withholding.

In the example that one is engaged as a contractor, he/she will be responsible for meeting all the taxes mentioned above. already though people who fall in this category earn a fatter paycheck, they are required to pay Medicare, Social Security, and incomes taxes. It is crucial, consequently, to ensure that one is certain about his/her position of employment.

Most firms love engaging independent contractors instead of hiring their own employees since from a tax angle, it saves them lots of money. In this way, they do not have to go by the administrative problem of withholding taxes, while their businesses also do not require making any contributions to Medicare, Social Security, or any other federal unemployment taxes on wages to such contractors.

This is the main reason why the tax Service and the Labour Department have stepped up their investigation into worker classifications. This role squarely rests on the two federal agencies. These agencies have entered into an understanding, together with 11 states including Illinois, Connecticut, and Hawaii, to make it easier to proportion information regarding employee classification. The IRS has a new program in place meant to let eligible employers determine worker misclassification matters more easily. In the program, when a firm is determined to have wrongly classified workers as contractors, the company can simply correct the issue by reclassifying the workers in exchange for some relief from an IRS audit. Such companies are open to employment investigations, which can rule to the offending companies being liable for additional taxes, in addition as other penalties levied as a consequence of failing to fill W-2 forms. Additionally, there is the increased interest.

There are numerous ways of calculating whether a person is a contractor or an employee, but the main method is by behavioral control.

If the firm has the right to direct or control what one does as part of their job in addition as how one does it, then the engagement is that of an employee. However, if the firm merely dictates what one does but not how one accomplishes the work, then the engagement is that of an independent contractor.

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