Employee vs Contractor -- Tax Differences

What is the difference between classifying and paying a worker as an employee vs an independent contractor?

And why would an employer prefer one way or the other??

When a worker is categorized as an employee, the employer has financial and compliance responsibilities because of the employee.?

The employer needs to pay ? of the FICA taxes on the wages of the employee and is responsible for withholding federal, state, and local taxes and submitting to appropriate governmental agencies on behalf of the employee.

The FICA taxes the employer is responsible for can be costly, such as for example on a salary of $100,000, the employer would need to pay 7.65% in FICA taxes which equates to $7,650.

If the same worker is categorized as an independent contractor, the independent contractor would be required to pay the complete FICA amount themselves and be responsible for sending estimated tax payments to the government agencies.?

Employers sometimes erroneously categorize employees as independent contractors for simply not being familiar with the rules or possibly due to the financial and compliance burden mentioned above.

Are you not sure if you should be categorized as an independent contractor or employee?

Have a question about this or another tax-related matter? Feel free to reach out!

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