Operating as an Independent Contractor

If you are being paid for services as an independent contractor, be sure to review the rules for qualifying. If your classification is changed, you may be subject to additional tax. Although as an employee you pay only half of the FICA tax you pay as an independent contractor, it is figured on the gross income not your net income after business deductions, so your FICA tax may be higher as an employee depending on the amount of deductions you take on your Schedule C. In addition, any business expenses you deduct would be limited to the amount exceeding 2% of your adjusted gross income (AGI). Also, since your AGI would likely be higher as an employee, you may lose certain tax credits or deductions that are based on your AGI. In determining whether you are an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.