Determining your status is one of the challenges of working at home. Your employer may tell you that you are an independent contractor (IC), but the IRS and your state may consider you an employee. It pays to know which you will be.
The reason many employers tell their at-home employees that they are independent contractors is because they don’t have to provide benefits, unemployment insurance or deal with your taxes. They’re your problem. However, many businesses try to stretch the definition of independent contractor too far, and this can have a major impact on your tax situation.
If you are an independent contractor, you may need to pay quarterly taxes. If you want health insurance, you either need to find your own or have your spouse get it. And, of course, if you're unemployed, finding a job is your problem. You won't be collecting unemployment unless you're eligible for another reason.
While the exact definitions may vary by state for the purposes of your state taxes, the IRS definitions will help you determine your status.
The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These facts fall into three main categories:
For a worker who is considered your employee, you are responsible for:
For a worker who is considered an independent contractor, you may be responsible for issuing Form 1099-MISC, Miscellaneous Income, to report compensation paid.
In short, if your employer can tell you how and when to work and what exactly you will be doing, you are most likely an employee. If you are put through training, you are probably an employee. If you get benefits, such as insurance, you are an employee. On the other hand, if you have expenses the employer does not reimburse, and aren’t told what to do or when, you are probably an IC. All an employer can tell an independent contractor is what result they want, not how it comes about.
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