There is much confusion surrounding the issue of whether a worker is an employee or an independent contractor.  The burden of this determination falls on the shoulders of the employer.  Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on employee wages.  You do not generally have to withhold or pay any taxes on payments to independent contractors.


How much control the business owner has is the primary determinant. The IRS uses three broad categories to determine whether a worker is an employee, as follows.


1)      Behavioral Control

2)      Financial Control

3)      Type of relationship


Refer to IRS Publication 1779 for guidance on these issues.


If your worker does qualify as an independent contractor, you will need to issue them a Form 1099 for each year in which you pay them more than $600.  Use Form W-9 to obtain the needed information for proper completion of the 1099 for each independent contractor.


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