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 the person or entity hiring the independent contractor has no obligation to withhold income taxes from the contractor’s fees. 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 Idaho, as in other states, the distinction between an independent contractor and an employee is significant for tax and legal responsibilities. Independent contractors, often referred to as freelancers, operate under a business-to-business relationship with those who hire them, meaning they are not considered employees. Consequently, independent contractors are responsible for paying their own Social Security and Medicare taxes, known as self-employment taxes, rather than having these taxes withheld by an employer. The hiring party is not required to withhold income taxes from payments made to an independent contractor. 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 over the work performed and the financial aspects of the job. Misclassification can lead to legal and financial penalties. It is advisable for both parties to clearly understand their roles and obligations under this classification to ensure compliance with state and federal laws.