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 Pennsylvania, as in other states, the distinction between an independent contractor and an employee is significant for tax and legal purposes. Independent contractors, often referred to as freelancers, are responsible for paying their own Social Security and Medicare taxes, as they are not considered employees of the hiring entity. The hiring party is not required to withhold income taxes from payments made to independent contractors, nor are they obligated to provide benefits such as health insurance, workers' compensation, or unemployment insurance. 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 examines factors such as the degree of control the hiring party has over the worker, the financial aspects of the worker's job, the relationship between the parties, and the nature of the work performed. Misclassification can lead to legal and financial penalties. It is advisable for both parties to clearly understand their roles and obligations to ensure compliance with state and federal regulations.