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 Vermont, the classification of a worker as an independent contractor or an employee is crucial for tax and employment law purposes. According to federal law, specifically the IRS guidelines, the right-to-control test is used to determine this classification. This test examines factors such as the degree of control the hiring entity has over the work performed and the worker's independence in conducting their business. Independent contractors in Vermont 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. Vermont may have specific statutes that further define the independent contractor status and outline the criteria for state tax and employment purposes. It is important for both the hiring party and the worker to understand these distinctions to ensure proper classification and compliance with both state and federal laws.