Am I an independent contractor or an employee?

Many Texas residents may not be aware if the doctor or accountant they frequent is an employee or an independent contractor. However, this distinction is very important when it comes to taxation, because both have different tax obligations. It does not help that IRS tax law is complicated and changes frequently.

An independent contractor is considered self-employed. If the payer has the ability to control the result of a person’s work, but not the way it is done or what is to be done, that person is most likely to be considered an independent contractor. Though doctors, veterinarians, lawyers and contractors are usually considered independent contractors because they provide their services to the general public, it depends more so on the facts of the case. Self-employed individuals are subject to self-employment tax.

If services can be controlled by an employer, in the sense that the employer dictates what will be done and when, then the person is not considered an independent contractor. This is true even if the person has freedom of action. When an employer has the right to control the details of the services being completed, the worker is most likely not an independent contractor. When two people are in an employer-employee relationship, regardless of how they term it, the worker is not considered an independent contractor and the tax obligations are different. Employee earnings are subject to Social Security tax and withholding taxes.

Knowing one’s worker status under IRS tax law is important in ensuring one is meeting their tax obligations. A taxpayer who even mistakenly files the wrong forms or an incorrect amount of taxes may find themselves in hot water with the IRS. Speaking with an experienced attorney can be one way to determine one’s tax obligations.