The status of independent contractor carries with it many tax ramifications. For example, an employee shares the costs of SOCIAL SECURITY and MEDICARE taxes with his or her employer; whereas an independent contractor is responsible for the entire amounts. Yet independent contractors generally qualify for more business deductions on their federal income taxes than do employees. Also, independent contractors must pay estimated taxes each quarter, whereas employees generally have taxes withheld from their paychecks by their employer.
One important disadvantage of working as an independent contractor is that standard employment benefits—such as health, life, dental, and disability insurance; funded retirement plans; paid vacation time; and paid maternity or PATERNITY leave—are not available. Independent contractors may fund their own benefits, but not on a tax-free basis—whereas many benefits provided by employers to employees are, by law, tax free.
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