In our new economy, some people who work from home are independent contractors while some areÂ employees.Â This depends on the facts in each case.
The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.
You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.Â You are not an independent contractor if you are using tools, supplies and equipment required for the job supplies by the employer.
Earnings of an independent contractor are subject to Self-Employment Tax as well as personal income tax and may require estimated tax payments.Â Earnings as an employee areÂ subject to FICA (Social Security tax and Medicare) and income tax withholding.