Employees vs. Contractors: What are your Company's Tax Liabilities Video

Do you understand the differing tax liability for employees and independent contractors? This small business video minute will put you in the know.

When you hire an employee, you must pay employer and employee taxes. When you hire an independent contractor, you don't pay taxes - instead you issue a 1099 form to them at the end of the year. Since independent contractors pay their own taxes, they usually charge more than you would pay an employee.

Video Transcript

Welcome to the SurePayroll minute. I’m Michael Alter.

As an employer, your tax liability differs greatly depending on whether you classify workers as independent contractors or employees. If you don’t classify them correctly, you could wind up paying tax penalties.

When you hire employees, you’re responsible for reporting and paying employer and employee taxes. You must pay any local, state and federal taxes on a regular basis.

When you use independent contractors, you don't pay taxes when you pay them for their work. Instead, you issue them a 1099 form at the end of the year. The independent contractors pay their own taxes, which is why they normally charge more than you would pay an employee to do the same job.

If you use an independent contractor for a very small project, you won’t have to worry about extra paperwork. However, the IRS requires you to issue a 1099 to contractors to whom you’ve paid at least $600 per year.

For the simple answer to small business issues, I’m Michael Alter with your SurePayroll Minute.