Employee or Contractor – What’s the Difference?

Sometimes the offer letter surprises you with the word Contractor, where you were expecting to see Employee. What does that mean? As with everything taxes, there is no quick answer for which is “better”, but knowing the difference will keep you compliant and (hopefully) keep your taxes down.

Paperwork

Employers need a completed W4 for all employees, while businesses need a completed W9 for contractors. Employee pay statements will include Social Security and Medicare deductions, while Contractors will just receive a check or e-payment. In January, employees receive a W2 for the prior year's wages, while most contractors receive a 1099-NEC.

Taxes

As an Employee – your tax preparation can be very simple. The figures on your W2 go on the 1040. IRS, Social Security and Medicare withholdings are done automatically. Tax effects from most employer-based benefits have been accounted for, and employees have no deductible work expenses. As a Contractor – things get complicated quickly. You will likely attach a Schedule C to your 1040, along with the C-supporting forms. Most contractors are required to make tax deposits with the IRS throughout the year. On the plus side, they are allowed to deduct expenses before that tax is calculated. This means knowing what is deductible, and how to stay compliant.

This is where tax professionals come in handy! TOP QUESTIONS WHEN EMPLOYEES START WORKING AS CONTRACTORS:

▨	How do I know the IRS deposit due dates and amounts to pay?
▨	My income is not consistent from month to month, or even year to year, how can I estimate my taxes?
▨	How can I confirm the IRS is crediting my account?
▨	What if I overpay or underpay?

BattleTax is just one click away, and your message will be replied to within 24 hours.