Independent Contractors and Self-Employed

Information on this website applies ONLY to the unique Social Security (Old Age-Survivor-Disability Insurance, “OASDI”) and Medicare (Health Insurance, “HI”) coverage and Federal Insurance Contribution Act (“FICA”) tax obligations that pertain SOLELY to state and local government employees.

The information below contains basic information that applies to independent contractors who provide services to public sector employers. For more detailed information, please go to both the U.S. Social Security Administration’s and the U.S. Internal Revenue Service’s websites.

The factors of a job arrangement or business venture that may show an individual is an independent contractor include:

The worker makes a profit or may suffer a loss;
The worker is hired to complete a certain job and if that job is not completed he/she may be liable for damages;
The worker may work for a number of organizations or persons at the same time;
The worker advertises to the general public that she/he is available to perform services;
The worker pays her/his own expenses, has her/his own work place and equipment

Consequences of Misclassifying a Worker

If a worker is incorrectly treated as an independent contractor, the worker will be paying both the employer’s and the employee’s share of certain taxes. For the employer, misclassifying a worker as an independent contractor can also result in back taxes, penalties and interest. This error has cost some states and their political subdivisions millions of dollars, thus making it important to determine if workers are independent contractors or employees at the time they are hired.

If the Status of the Worker Cannot be Determined

Where a question exists as to the employment relationship status of a worker, a state or local employer or the worker can bring it to the attention of the Internal Revenue Service (IRS). All pertinent facts relating to the individual’s work arrangement should be obtained and submitted to the IRS on a Form SS-8. When a Form SS-8 is submitted to the IRS, all the facts are analyzed and the determination of the worker’s status is presented to the employer in the form of a written Determination.