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 North Dakota, as in other states, the classification of a worker as an independent contractor or an employee is significant for tax purposes and compliance with labor laws. Independent contractors 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. The classification hinges 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, the financial control over the business aspects of the worker's job, and the relationship between the parties (including the presence of a written contract, the permanency of the relationship, and the extent to which services provided are a key aspect of the hiring party's business). It is crucial for hiring entities in North Dakota to correctly determine the status of the workers they engage to avoid penalties and ensure compliance with state and federal tax laws.