Qualifying as an independent contractor has important tax implications that workers who fall into this category should be familiar with. If they fall into this category, workers who are classified as independent contractors should be familiar with how they qualify for that status and the implications of that status.
What makes an independent contractor?
Essentially, the degree of control or authority the employer exercises over the worker determines if they are an independent contractor. A variety of factors are considered to determine if a worker is an independent contractor including the extent to which the services the worker renders are an integral part of the business; the permanency of the business relationship between the employer and worker; the nature and degree of control of the employer and the worker; the degree to which the worker has an independent business operation; the worker’s profit and loss opportunities; the amount of money the worker has invested in equipment and materials; and other factors as well.
Impact of independent contractor status
As an independent contractor, the employer does not withhold any taxes or pay any taxes on behalf of the independent contractor worker. That means that the independent contractor worker must pay those taxes themselves on a quarterly basis.
It is helpful for workers to be familiar with what independent contractor status is and its implications under IRS tax law. How the worker is categorized has significance for the employer, worker, their tax status and the rights and duties of the parties which makes it essential for them to understand.