Tax Law and News Essential Rules: Employee vs. Independent Contractor Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Mike D'Avolio, CPA, JD Modified Oct 17, 2017 1 min read It may be tempting to classify an employee as an independent contractor because of the cost savings, but please don’t! There are strict rules surrounding the proper classification of a worker and steep penalties for failure to apply the law correctly. Some businesses misclassify an estimated 10 to 60 percent of their workers as independent contractors, and nearly 30 percent of firms misclassify contractors. If you answer “yes” to any of the following questions, you’re likely hiring a W-2 employee, and not a 1099 independent contractor: Will the work be performed on company premises? Will the individual work only for you? Will you provide tools and training for your worker? Do you control the hours the person works? For employees, you need to withhold taxes, pay payroll taxes and file Form W-2. This form is used to report wages and is filed with the employee and the Social Security Administration. For independent contractors, such as attorneys and accountants, no withholding is required, but you need to provide the contractor and IRS with Form 1099-miscellaneous. This form is required when you make payments of $600 or more for services performed. There are convenient electronic services, such as Intuit’s® 1099 e-file, that pre-fill your information and enable you to email or print forms for your contractors. This will avoid running to the office supply store to buy them. Refer to this infographic to help you distinguish between the two. Previous Post IRS, States and Tax Industry Urge Taxpayers to Join the… Next Post 10 Key Tax Tips for Farmers and Ranchers Written by Mike D'Avolio, CPA, JD Mike D’Avolio, CPA, JD, is a tax law specialist for Intuit® ProConnect™ Group, where he has worked since 1987. He monitors legislative and regulatory activity, serves as a government liaison, circulates information to employees and customers, analyzes and tests software, trains employees and customers, and serves as a public relations representative. More from Mike D'Avolio, CPA, JD Comments are closed. Browse Related Articles Tax Law and News Properly Classifying Employees and Independent Contract… Tax Law and News Employee or Independent Contractor: How to Get it Right Tax Law and News Employee vs. Independent Contractor: How Tax Reform Imp… Practice Management Tax tips for gig entrepreneurs and workers Tax Law and News How to Help Your Small Business Clients Stay on Top of … Practice Management The pros and cons of hiring independent contractors for… Tax Law and News Misclassification of Workers: What Are Your Options Whe… Tax Law and News Proper Hiring and Tax Withholding Guidelines for Domest… Tax Law and News 3 easy steps for your clients to collect W-9s Tax Law and News Are Your Clients Subject to the Nanny Tax?