IRS document on Self-Employed vs. Independent Contractor

Except that "self employed" often need local business licenses and independent contractors may not, I can't think of any time a distinction is made.

I think the IRS is making the distinction to indicate to people that the line between employee and self-employed is not as clear as we might think it ought to be. For some - those in independent recognized businesses, it's easy to tell. But for freelancers it's not always. But aside from that, they both file Schedule C's and are otherwise equivalent. Stu

They are the same thing.

I consider a self employed person to be one needing a business license and one who holds himself out to the public as being a separate business. Therefore a self employed person can be an independent contractor, whereas all independent contractors are not subject to business licensing requirements. It's all facts and circumstances. One client hired a worker to work in his laundramat along side the other regular employee. I asked why no taxes taken out and he replied that she prefers to be an independent contractor and "pay her own taxes at the end of the years. AGGGGHHHH!!!! Yea, sure she will. As to the cite above, this is interesting:

"You are a member of a partnership or limited liability company that files a Form 1065, U.S. Return of Partnership, that carries on a trade or business;....." Looks like IRS is resolving any previous debate over whether or not LLC members have to pay SE tax. ChEAr$, Harlan Lunsord, EA n LA

None.

I know of many one person C Corporations and the one person executive is an employee, not a sole proprietor. There is no Schedule C filed by the one-person. The issue is whether a person you hire to perform services for you is either an independent contractor or a statutory nonemployee and therefore is treated as being responsible for their own employment taxes and reporting their own gross receipts or the person is a common law employee or a statutory employee and you both share responsibility for the employment taxes and you issue a W-2. I believe the point the IRS is trying to make, is that when one is operating an unincorporated trade or business solely owned by one person, that person is self-employed and files Schedule C or C-EZ. When one offers to perform certain services for you, the facts and circumstances of each case will determine whether you have an employee or an independent contractor. If an independent contractor, then the independent contractor files tax returns in the same manner that a sole proprietor files tax returns. You can hire a sole proprietor to perform work for you and if you create a certain set of facts, you can find that you have a common law employee.

Just a guess, from reading the document: they are actually trying to reinforce the distinction between employee and non-employee, by responding to those who think, "But I'm not self-employed -- so I must be an employee". They are saying, "sure, you're not self-employed, you're an independent contractor -- but you're still not an employee!". This concept regularly trips up folks such as those who drive their own cars to deliver daily newspapers to residences in my area -- they certainly don't think of themselves as proprietors of their own small business, but they definitely aren't employees. A document such as the one you ask about can help clarify this distinction.

-Mark Bole

I am an employee of a C Corporation which I also own. I am therefore not self-employed.

When my C Corporation is hired by clients to do consulting work, the contracts state that the corporation is an independent contractor and not an employee of the client.

These contracts would have the same clause regarding "independent contractor" even if I were self-employed and organized as a Sole Proprietorship.

The two concepts are very different.

-- Vic Roberts Replace xxx with vdr in e-mail address.

On a second reading I agree with you that this document is poorly worded.

First of all, the issue of Self-Employment Tax should be linked to self-employed individuals, not Independent Contractors.

Second, the definition of an Independent Contractor should not, to the best of my knowledge, not include the phrase "not what will be done" since I interpret that to mean the end result, the delivered product or service.

Being an independent contractor means I decided the "how" (or "method") and the "where" and "when", but not the "what will be done" or "when it must be delivered."

-- Vic Roberts Replace xxx with vdr in e-mail address.

It may be "common knowledge" for employers who to want to categorize people as "independent contractors" to avoid payroll taxes. From the way it is worded I think they are trying to distinguish the difference in the mind of the "employed" not the employer. This distinction is often not "common knowledge" the employed person until tax time when they get a 1099-MISC instead of a W-2 and their accountant gives them a nice big bill for SE tax!

Thanks to everyone who replied to my question on this.

Steve

Thanks to everyone who replied to my question on this.

Steve