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 York, the classification of a worker as an independent contractor or an employee is a significant legal determination that affects tax obligations and labor rights. Independent contractors in New York are responsible for paying their own Social Security and Medicare taxes, as they are not considered employees. The hiring entity does not withhold income taxes from payments to independent contractors and is not required to provide them with employee benefits such as health insurance, workers' compensation, or unemployment insurance. The classification is guided by the IRS's right-to-control test, which examines factors such as the degree of control the hiring party has over the work performed and the worker's independence in the execution of their tasks. Misclassification of an employee as an independent contractor can lead to legal consequences, including penalties and back taxes. It is crucial for hiring entities to carefully assess the working relationship using the IRS guidelines to ensure proper classification.