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 Montana, as in other states, the distinction between an independent contractor and an employee is significant for tax and legal responsibilities. Independent contractors are responsible for paying their own Social Security and Medicare taxes, as they are not considered employees and therefore do not have taxes withheld by the hiring party. The hiring entity is also not required to provide benefits or pay unemployment insurance taxes on behalf of 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 examines factors such as the degree of control the hiring party has over the way work is performed. Misclassification can lead to legal consequences and penalties. In Montana, the Department of Labor & Industry provides guidelines and enforces regulations regarding worker classification. It is advisable for both parties to clearly understand their roles and obligations under this classification to ensure compliance with state and federal laws.