In short: Independent contractors are self-employed and provide specialized or requested services on an as-needed basis, while employees work for employers and often have little control over their work and performance.
It's important to understand the difference so you can classify your workers appropriately, otherwise you might be subject to additional taxes, penalties or fines, interest, and/or other retroactive damages. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. (irs.gov)
If an employer-employee relationship exists (regardless of what the relationship is called), workers are not independent contractors, and their earnings are generally not subject to Self-Employment Tax. Make sure you're following both federal and state regulations to ensure you've classified a worker correctly.
Consider the following categories:
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