Worker classifications under IRS tax law

Not every worker is equal in the eyes of the law. Austin residents who perform services that can be controlled by an employer, even if the way to achieve an objective is left up to the individual, are known as employees. On the other hand, independent contractors are those who offer their services to the general public and the payer has the right to control only the result of the work and not the way it is performed. For example, doctors, lawyers, subcontractors, accountants and dentists can be considered independent contractors.

From a tax point of view, this is an important distinction because the IRS tax law regarding both is going to be different. Employees are subject to certain taxes whereas independent contractors may have certain exemptions.

Independent contractors deduct business expenses but the new tax law has suspended reimbursed employee business expenses as deductions. Employees are not eligible for qualified business income, whereas independent contractors are. Additionally, employees and employers share the Medicare and social security taxes equally on salaries, but independent contractors owe it in full alone. Lastly, employees are usually enrolled in employer insurance and retirement plans, whereas independent contractors usually have individual healthcare plans.

There are a number of other implications of worker classifications, which is why it is important to ensure one is filing their taxes under the correct classification. However, one cannot make this determination on their own-IRS tax law defines the parameters of each classification. Those who are unsure of where they fall might want to consult an experienced attorney for guidance.