Odetta Taylor - North Carolina Journal for Women

Odetta Taylor, Owner
Alternate Office Solutions

Independent Contractor or Employee

According to publication 1779 published by the IRS, the role of an independent contractor is clearly defined. This classification affects how you pay your federal income tax, social security and Medicare taxes, and how you file your tax return.

There are three main categories which determine whether or not one is an independent contractor or employee. The categories are behavioral control, financial control and relationship of the parties.

Behavioral Control

Simply stated, who controls the flow of the work? If you receive extensive instruction on how work is to be performed, then you are an employee. Being told how, when or where to do the work and what tools or equipment to use or who to hire to assist you, establishes you as an employee.

As an independent contractor, once you are given the scope of the work that needs to be performed, you determine the time and place you perform the work.

Financial Control

Making a significant investment in your work establishes you as an independent contractor.
As an independent contractor you would not expect to be reimbursed for some or all of your business expenses.
Realizing a profit or incurring a loss also establishes you as an independent contractor.

Relationship of the Parties

Benefits, if paid by an employer, establishes you as an employee.
Benefits, if not paid by the employer, could establish you as either an employee or an independent contractor. Not all employers provide benefits to their employees.
A written contract which clearly states the intentions of both parties is needed when you are an independent contractor.
An employer will withhold income tax and your portion of social security and Medicare taxes and provide you with a Form W-2 (Wage and Tax Statement), which shows the amount of taxes withheld.
As an independent contractor, you may receive a Form 1099-MISC (Miscellaneous Income), which reports what has been paid to you.
You are responsible for paying your own income tax and self-employment tax.
Business expenses would be deducted on a Schedule C of your income tax return.

For more information regarding the guidelines of determining whether you are an employee or independent contractor can be found at www.irs.gov. Please look for the following publications:

15-A - Employer’s Supplemental Tax Guide
505 – Tax Withholding and Estimated Tax
533 – Self-Employment Tax
1779 – Independent Contractor or Employee…


Odetta Taylor is the owner of Alternate Office Solutions, an office support service that has been in business for 9 years in the Triangle providing a variety of administrative services to companies both large and small.		Dec 03 - Time to Expand? Hiring Employees vs. Subcontractors Jan 04 - Home based: To be or not to be Mar 04 - Job Sharing May 04 - The Paperless Office Jul 04 - Independent Contractor or Employee Aug 04 - Memory Stick Jul 05 - Can't Boot to Windows? Jun 06 - Flexibility in the Workplace
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