Independent Contractor Requirements & How To Save On Taxes
independent contractor requirements &
saving money on taxes
Why would you want to hire
•No FICA Taxes
•No Unemployment Insurance Tax
•Potentially Lower Worker’s
•Bottom Line: Hiring people as
independent contractors can save
your business money!
Why wouldn’t you want to hire
• In some cases you legally cannot.
The IRS provides guidelines for
classifying workers. If you
misclassify employees as
independent contractors, you can
face fines up to $15,000 per
instance or criminal persecution.
•You have to give up certain rights
to control or direct the person’s
work. For example, you cannot tell
an independent contractor when to
start and stop working.
• It can be the morally wrong thing
to do. If a person works exclusively
for you and cannot pursue other
opportunities, you are cheating
them out of money by classifying
them as an independent contractor.
What are the paperwork requirements
for independent contractors?
• For independent contractors that
are US residents or citizens, you will
need to fill out a W-9 Form.
If you pay them more than $600 per
year, you are required to issue
independent contractors a 1099-
Here are the Instructions for W-9 and 1099-MISC
• For contractors outside of the
United States, you should establish
the contractor’s foreign residence.
This can be accomplished by having
the contractor fill-out a W-8BEN
Here are the instructions and a good article.
There are three general guidelines for figuring out
how one should classify a worker:
1) Control - How much control does the person have over how
they do their job? If the person has a great deal of discretion
over how to do their work this is considered an independent
2) Financial Arrangement - Is the “profitability” of the job
determined by the worker? If there is no financial variability
in the “profitability” of the job, then he or she is considered
3) Business Relationship - Does the worker have a contract
with the company, or receive benefits? An independent
contractor will tend to have a contract, while employees will
tend to receive benefits.
If you hire and pay the contractor through a Freelancer site
like Freelancer.com, Enlace.com or Odesk you can almost
classify the person as an independent contractor.