IRS Advice on Independent Contractors vs. Employees

Before you can determine how to treat the payments your business makes for services, you must first know the business relationship that exists between you and the person performing the services. The

An independent contractor;

A common-law employee;

A statutory employee;

A statutory nonemployee.

In determining whether the person providing service is an employee or an independent contractor, consider all information that provides evidence of the person's degree of control and independence.

It is critical that you, the employer, correctly determine if the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.