Understanding Employment Status Classifications
Federal tax purpose requires a distinction between independent contractors and employees. This is important for determining who should file 1099 forms as a self-employed contractor and who is covered under W-2 forms as an employee.
As an employee, your employer is responsible for withholding federal income taxes and your portion of Social Security and Medicare taxes. Also, your employer is responsible for paying Social Security, Medicare and unemployment taxes on your wages. Your employer must give you a form W-2 showing the amount of taxes withheld from your pay.
As an independent contractor, you are responsible for paying income and self-employment taxes. The business you work for does not withhold taxes from your pay. But it may give you a form 1099 to report what it has paid you for your services. You may also deduct appropriate business expenses from your taxes.
