Employee or Independent Contractor?

In my upcoming e-course “Starting Your New Business”, I have a bonus discussion on the difference between employees and independent contractors.  I discuss what makes a person an employee as opposed to an independent contractor.  The items that the IRS takes into consideration when deciding are also discussed.

To make a point of the difference in the responsibilities, I made two lists.  Wow!  Put it in black and white, and it’s obvious why everyone wants independent contractors instead of employees.  Take a look:

Responsibilities when your business has employees

  • Withhold federal and maybe state and local income taxes
  • Withhold social security tax and medicare tax
  • Pay the employer’s share of social security tax and medicare tax
  • Make federal tax deposits
  • File Employer’s quarterly 941 tax return
  • File state and local tax returns
  • File annual federal unemployment tax return
  • Pay federal unemployment tax
  • File annually W2’s and W3
  • File state unemployment reports
  • Pay state unemployment tax
  • Comply with New Hire Reporting requirements

Responsibilities for Independent Contractors

  • File 1099 if you paid a contractor $600 or more during the year

Big difference in those two lists!