John E. Barraclough, Jr., CPA and Managing Principal, Barraclough & Associates, P.C.

It is more than a matter of semantics to the Internal Revenue Service when a business owner determines that the people who work for him or her are independent contractors rather than employees.

If an individual is a genuine employee, the employer must withhold and pay Social Security and Medicare taxes, withhold income taxes, and pay unemployment taxes on the wages.  An employer also might offer benefits such as health insurance, vacation pay, and retirement incentives.

If an individual is an independent contractor, the employer does not have to withhold taxes or offer benefits or retirement incentives.  The independent contractor must file an income tax return and pay income tax as well as self-employment tax to cover his or her own Social Security and Medicare liabilities. Continue reading →