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 New Jersey, the classification of a worker as an independent contractor or an employee is a significant legal determination that affects tax obligations and employment benefits. The state follows guidelines similar to the IRS's right-to-control test to ascertain a worker's status. This test considers factors such as the degree of control the employer has over the work performed, the worker's investment in equipment, the opportunity for profit and loss, and the permanency of the relationship. Independent contractors in New Jersey are responsible for paying their own Social Security and Medicare taxes, as they are not considered employees. Additionally, those hiring independent contractors are not required to withhold income taxes from the contractor’s fees or provide any employee benefits. 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 determine the classification of their workers to comply with state and federal laws.