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Are You an Employee or a Contractor? Understanding How the IRS Defines Each & Important Tax Filing Requirements

Updated: Mar 20

Tifani Henderson, CEO of TNH Financial Services smiling. "Are you an employee or are you a contractor?" written in black text on an emerald green background.
This article outlines how contractors and employees are defined by the IRS, key benchmarks and requirements for each, and how this determines your tax responsibilities.

What is an Employee?


Most of us understand what employers and employees are in the marketplace, however, we may experience a bit of confusion when we consider these terms in light of agencies and businesses. For example, if you provide repeated work for someone in their law firm, are you an employee or an independent contractor? To understand this, we have to explore how the IRS defines employees and contractors.

How Does the IRS Determine Contractor v. Employee Filing Status?

When determining filing status, the IRS looks at three areas of consideration, and the level of autonomy and control in each. Behavioral: Who controls how and what the worker does in reference to the job? How much control is exerted on the worker? How much independence does the worker have?

Financial: Who controls the business-related aspects of the workers job? How much control or independence does the worker have over their benefits, income, and job-related expenses?

Relational: Who determines the working relationship's benefits, contracts, and duration? How essential to the structure of the business is the work being performed?

You Are Likely An Employee If…

1. The person hiring you controls and determines your job responsibilities, including how and what work you perform, when you perform the work, and where the work is performed. The work of an employee performed is essential and directly related to the individual or business that hired you. 2. The individual or business who hired you controls how and when you get paid, your benefits, and takes out any applicable withholdings from your pay. Your pay is set by the individual or company who hired you, and they determine when and how you receive incentives, promotions, or income-based raises. The employer also must remit payroll taxes on your behalf as an employee. 3. The hiring individual or company outlines the benefits, provides the contracts, and is largely in control of the working relationship’s duration and structure. The employer may also require you to attend company meetings and training to continue employment with the company. You may also be required to adhere to an employee code of conduct or employee handbook.



You Are Likely An Independent Contractor or Self-Employed If…



1. You determine and manage the products and services you provide to individuals and businesses, and the what, where, when, and how those products and services are provided. You likely provide a supportive product or service to the hiring personnel.



2. You set your own rates and pay structure, establish your own benefits, and are responsible for your own taxes and withholdings. Your clients may request a W-9 from you if they will pay you more than $600 in a calendar you, and you will likely file a 1099 as part of your tax return.



3. Your benefits, time off, contracts, and working relationship’s duration and structure are largely controlled by you. You can choose who you work with, how you work with them, and when you start and stop your working relationship. You likely have a set of guidelines for determining if a working relationship is mutually beneficial, and may choose to end that relationship when it no longer serves you or your client well.



I Understand the Difference Between Employee & Contractor. Why is it Important to How I File My Taxes?



So, now that we’ve outlined the different attributes the IRS considers and some key differences regarding autonomy and control for Employees and Contractors, which one are you?



Knowing the difference is very important for your taxes, whether you are an employee or a contractor. They both require different forms and different responsibilities.



As an employee, you will receive a W-2 from your employer (their responsibility and file your state and federal taxes using that information (your responsibility). You are also responsible for appropriately declaring your withholdings on your W-4, and adjusting them when they change.



As an independent contractor, you are responsible for providing individuals and businesses with a W-9 if you make more than $600 in a calendar year, and those individuals and businesses are responsible for providing you with a 1099 that you will use for filing your taxes. Additionally, businesses and individuals are required to send a copy of form 1099 to all reporting agencies (federal and state) on your behalf at year-end.



If you have more questions about determining your filing status, TNH Financial Services is here to help. Please feel free to leave a comment below with your question, or reach out to us for more specific guidance.



Additional Resources You May Find Helpful




Myths About Misclassification (Department of Labor)

Stevenson, K. (2022). How to avoid trouble with the IRS: 10 best tax tips for the self-employed, gig worker, and indie contractor. Ma Pig Publishing. Sarah Mays is a freelance writer for TNH Financial Services, LLC. She can be reached at sarah@theprintededge.com 






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