Employee Status for Taxation

Independent Contractor Status Boons There are numerous reasons as to why it is of critical importance to distinguish whether an individual is an employee or an independent contractor. The first of these pertains to purposes of taxation. Quite simply, there are numerous ramifications that the status of these two options results in for those who select one or the other. In addition to having to fill out numerous different forms (especially if one is an independent contractor), the crux of the taxation issue is as follows.

Independent contractors are generally issued 1099 forms. When one is an independent contractor, numerous taxes are not taken out of his or her earnings -- including social security and other mandated federal taxes. Subsequently, that individual is responsible for paying those taxes on April 15 when one must submit one's tax documentation. Additionally, individuals who receive 1099s are subject to self-employment tax, which is largely levied to them so that they can pay for the aforementioned federal taxes.

It is also noteworthy to mention that those of 1099 independent contractor status are behooved by making quarterly tax payments for their self-employment tax through the end of the year, as a means of not having to suddenly be accountable for all of those taxes at one time. On the other hand, individuals who are employee status receive W2 (or is it W4) forms.

Depending on the number of exemptions one makes on filling out the other one of these forms ( see preceding), one has an allotted amount of taxes directly taken out of one's earnings each time one is administered wages. Thus, via this method it is possible for employees to actually receive money back after filing their federal taxes, in the form of a refund. Employees are also eligible for benefits such as health insurance, and paid.