Employee or Independent Contractor?
One would think such a classification would be an easy answer, but as the IRS continues to add additional regulations the answer seems even harder to find.
Generally, an employer is required to withhold income taxes, Social Security, Medicare and unemployment taxes for each employee, as well as pay the employer portion of Social Security and Medicare. With an independent contractor, the company is not required to withhold or pay any taxes; this responsibility lies with the independent contractor.
Although the tax consequences of these classifications are important, it is also important to consider some of the other benefits. Such benefits as health insurance, vacation pay, 401K, etc. are available to employees, but not independent contractors.
While normally the IRS is only concerned with the tax consequences of this decision, the Patient Protection and Affordable Care Act (PPACA) will no doubt increase the scrutiny of the employee vs. independent contractor decision in regards to employer provided health insurance. Beginning in 2014, the PPACA will begin to impose penalties on certain large employers that do not provide access to health insurance or an affordable health insurance option.
This creates more pressure on an already complicated decision, but the IRS does offer tools to assist you in making the correct determination on their website — www.irs.gov.