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 Minnesota, as in other states, the distinction between an independent contractor and an employee is significant for tax and employment law purposes. Independent contractors are responsible for paying their own Social Security and Medicare taxes, as they are not considered employees. The hiring party does not withhold income taxes from payments to independent contractors and does not provide them with employee benefits. Proper classification of a worker as an independent contractor or employee is crucial and is determined based on the IRS's right-to-control test, which assesses factors such as the degree of control the hiring party has over the way the worker performs their tasks. Misclassification can lead to legal consequences, including penalties and back taxes. Minnesota may have specific guidelines and tests, such as the Minnesota Department of Labor and Industry's criteria, that supplement the federal guidelines to ensure proper classification.