Am I an employee or an independent contractor?
Whether you're an employee or an independent contractor affects how you pay your federal income tax, Social Security and Medicare taxes, and how you file your tax return. If you're in business for yourself, you may be an independent contractor. Publication 1779 has details about how to make this determination.
There are three main factors that determine whether you're an employee or an independent contractor.
A worker is an employee when the business has the right to direct and control the worker. For example, if you receive extensive instructions on how to do your work, this suggests you're an employee. These instructions can include:
If you receive less extensive instructions about what should be done, but not how to do it, you may be an independent contractor.
- How, when, or where to do the work
- What tools or equipment to use
- What assistants to hire to help with the work
- Where to purchase supplies and services
- Significant Investment
If you have a significant financial investment in your work, you may be an independent contractor.
If you're not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your unreimbursed business expenses are high.
- Profit or Loss Opportunity
If you can make a profit or incur a loss, you may be an independent contractor.
If you receive benefits, such as insurance, pension, or paid leave, you may be an employee. If you don't receive these benefits, you could either be an employee or an independent contractor.
A written contract may show the intended relationship between you and the business.