Independent Contractors for Tax Purposes

How these workers are classified is important because employees and independent contractors are treated differently for IRS tax purposes. Wrong classification for tax purposes can cause problems to a person that could financially destroy the person’s business. Owners must pay social security tax as well as they are responsible for the unemployment tax of the employees. When an independent contractor is paid a total of $600 or more for the tax year, it must be reported as miscellaneous income in the IRS form. The main factor that determines whether a worker is an independent contractor is who has the right to control the person.


For particular reasons, the worker himself may challenge the classification later. So, IRS was forced to develop twenty common law factors which are used to determine whether a worker is an independent contractor or an employee for IRS tax purposes. These laws should be taken into account while the classification is made, but all 20 laws need not be strictly followed. If a worker clearly is an independent contractor, a complete agreement should be formed on this regard