Independent Contractor or Employee?

Are you an independent contractor or an employee?  Many of the Workamper or other seasonal positions are structured for employees.  There are some for contractors, though.  What is the difference?…. A great deal when it comes to tax time.  For an employee, the employer sets the hours of duty, generally furnishes all the tools or equipment needed to accomplish the job, as well as all the materials and how the job is to be done. The employer, upon payment for these services withhold all taxes necessary: Federal / State income taxes, Social Security and Medicare taxes and disability insurance depending on in which state the work is performed.  California comes to mind now as well as some others. The employer then issues you a W-2 during January of the following year.

An independent contractor however is a self-employed individual with their own business.  The contractor will establish, with the “employing” business, an agreement to perform some duty, build a shed, install wiring, etc; for a set price or sometimes at an hourly rate.  The contractor will give the business an invoice for the work done.  The contractor furnishes his own tools and equipment to accomplish the job.  The employing business will send the contractor a 1099-Misc for Non-Employee Compensation for the earnings.  The employing business sometimes may withhold Federal income taxes but never Social Security / Medicare tax.  This is where the danger comes in.  These earnings are subject to Self-Employment tax and you are responsible for payment on your Individual 1040 tax return.

If you think that you are working as an employee but taxes (FICA & Med) are not being withheld, you may be in for a big surprise when you file your income tax return.  Even though your earnings are not for you to owe any income tax (after Capital losses, Rental losses, Itemized or Standard Deduction and Personal Exemptions) you may still owe Self-Employment tax (think Soc. Sec. Tax).  If you don’t have enough withheld from your “other jobs” or from a pension/IRA you may owe a large amount, with possible penalty if you have not made estimated payments.

If you find yourself in a Workamper job where the employer is not w/h taxes and is treating you as a contractor that’s fine if that is what you intend.  If it isn’t and you think that you may be in trouble at the year’s end….send me an email.  You may not be able to alter the situation but you could prepare now for April 2014.