An independent contractor (also known as a freelancer) is a person or entity who agrees to work for another person or entity as a nonemployee. Because of the independent contractor’s status as a nonemployee, the contractor must pay their own Social Security and Medicare (FICA) taxes. And unlike an employer, the person or entity hiring the independent contractor has no obligation to withhold income taxes from the contractor’s fees or to provide the contractor with any employee benefits. It is important for the person or entity who hires a worker to properly classify the worker as an employee or as an independent contractor based on the IRS’s right-to-control test.

In Colorado, the classification of a worker as an independent contractor or an employee is significant for tax purposes and compliance with labor laws. According to the IRS's right-to-control test, the degree of control and independence in the work relationship determines the worker's status. Independent contractors in Colorado are responsible for paying their own Social Security and Medicare taxes, as they are not considered employees. The hiring entity is not required to withhold income taxes from payments to independent contractors, nor are they obligated to provide benefits such as health insurance, workers' compensation, or unemployment insurance. Misclassification of an employee as an independent contractor can lead to legal consequences, including penalties and back taxes. Therefore, it is crucial for businesses to accurately assess the nature of their relationship with workers using the IRS guidelines and Colorado state law to ensure proper classification.