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Published: Sun, January 22, 2017
World | By Tasha Manning

Self-employed contractor (self-employed) or employee?

Self-employed contractor (self-employed) or employee?

For business owners, it is important to determine correctly whether the people providing the services are employees or independent contractors.

Generally, you as an employer have to withhold income taxes , Withhold and pay Social Security and Medicare taxes, and pay unemployment taxes on wages paid to an employee. Generally, you do not have to pay or withhold any tax on payments made to independent contractors.

Choose the situation that applies to you

  • I am a Independent contractor or self-employed If you own a business or contractor that provides services to other businesses, you are usually considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employment Tax Relief Center.
  • Contract people to provide services in my business < / Strong> If you own a business that hires other people to provide services, you must determine if the people who provide the services are employees or independent contractors.

Determine if the people who provide services are employees or independent contractors

To determine how to do this, To treat the payments you make for services rendered, you must first know the business relationship between you and the person providing the services. The person providing the services may be:

In order to determine whether the person providing the services is an employee or an independent contractor, all information demonstrating the degree of control and independence must be taken into account. / P>

Customary Law Rules

Business owners have to consider all these factors when determining whether a worker is an employee or an independent contractor. Some of these factors may indicate that the worker is employed, while other factors indicate that the worker is an independent contractor. The number of factors per se does not determine whether the worker is an employee or an independent contractor and this decision does not depend on a single factor. In addition, some of the factors may be relevant in one situation rather than another.

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The key is to look at all aspects of the relationship as a whole, to take into account the degree of the right to direct and control Business, and finally document any factor used to reach that determination.

Form SS-8

If, after reviewing the evidence for all three categories, A worker is an employee or an independent contractor, you can file Form SS-8 with the IRS (PDF) Determination of Worker Status for Purpose of Federal Employment Taxes and Income Tax withholding, (Determination of the employment status of a worker for purposes of the federal tax on payroll and withholding income taxes). The form can be submitted by the business or by the worker. The IRS will review the circumstances and the facts, and officially determine the current status of the worker.

Please note that this process may take at least six months, but the business that Continues to hire similar workers to provide specific services, you may want to file Form SS-8 (PDF).

Obligations to pay tax on The payroll

Certain regulations regarding payroll tax should be followed for certain industries. Implications of treating employees as independent contractors

If you classify an employee as an independent contractor, and not You have a reasonable basis for doing so, you could be responsible for paying tax on the payroll for that employee (the tax relief provisions explained below do not apply). For more information, see Section 3509 of the Internal Revenue Code.

Tax Relief Provisions

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