It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Individuals who are not U.S. citizens or permanent legal residents (green card holders) must follow the "Affiliates and Employees Outside the United States" process. Please click here for more details.
Generally, you must withhold and deposit income taxes, social security taxes and Medicare taxes from the wages paid to an employee. You must also pay the matching employer portion of social security and Medicare taxes and unemployment tax on wages paid to an employee. Generally, you do not have to withhold or pay any taxes on payments to independent contractors.
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services.
The purpose of this checklist is to assist in the determination between an employee and an independent contractor. Federal and state regulations assume all services are provided by employees and puts the burden of proof on the employer to show that an independent contractor relationship exists. There are significant penalties for classifying a worker as an independent contractor when they meet the criteria for employee classification. A worker may always be classified as an employee without penalties.