Do I file taxes as an INDEPENDENT CONTRACTOR OR EMPLOYEE??

This is a question that starts to bother a lot of new (and old) work –at- homers.

I will try my best to ease some of the tension in this area. Please keep in mind I am not a tax expert or advisor. Never have been and probably never will be. That being said, let’s begin.

Definition of an Independent Contractor

An independent contractor is a natural person, business, or corporation which provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when required, during which time she or he may be subject to the Law of Agency. Contractors often work through a limited company which they themselves own, or may work through an umbrella company.
In the United States, any company or organization engaged in a trade or business that pays more than $600 to an independent contractor in one year is required to report this to the Internal Revenue Service (IRS) as well as to the contractor, using Form 1099-MISC.[1][2] This form is merely a report of monies paid; independent contractors do not have income taxes withheld from their pay as regular employees do. When computing taxable income on the federal income tax return, the independent contractor can deduct, from his gross income amount, the amount work related expenses, such as tools or safety gear needed for the work that were purchased by the contractor himself.
Source: Wikipedia

So let’s break down what this means:

Example:

You get hired to work for a work from home company. The money you receive will not have taxes taken out. Meaning you are classified as an independent contractor and you are responsible for paying your own taxes.

Simple!

Employee Status

….An employee is any person hired by an employer to do a specific "job". In most modern economies, the term employee refers to a specific defined relationship between an individual and a corporation, which differs from those of customer, or client.

…..In this respect, it is important to distinguish independent contractors from employees, since the two are treated differently both in law and in most taxation systems. In the United States, employers are required to withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers generally do not pay or withhold payroll taxes on payments to independent contractors. [1]
Many companies further classify employees as exempt or non-exempt. This designation is used to separate employees that are eligible for overtime from those that are not. An exempt employee is one that is typically salaried and is not eligible to earn overtime. Non-exempt employees are typically paid hourly and are eligible for overtime pay.

Source: Wikipedia

So now you can easily determine which one refers to you.

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My intentions are to list the most overlooked business deductions tomorrow. This is very important so don't miss out!!

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As Always,

Alyxsa