Question

Select the statement that most accurately a differences between independent contractors and employees.

a) Employees set their own hours, pay their own expenses, and are compensated according to their results and not time spent.
b) Independent contractors and employees are taxed differently.
c) Independent contractors must file W-2s with the IRS.
d) Most brokers are employees, not independent contractors.

Answer 1

The key difference between independent contractors and employees is that they are taxed differently, with independent contractors paying both employee and employer portions of payroll taxes, as contrary to employees who have a portion withheld by their employer.

Step-by-step explanation:

The statement that most accurately describes a difference between independent contractors and employees is: Independent contractors and employees are taxed differently. Unlike employees, independent contractors are responsible for paying both the employee and employer portions of payroll taxes, because they receive a 1099 tax statement.

An employee typically has only 6.2% deducted from their paycheck for Social Security and 1.45% for Medicare. In contrast, independent contractors must cover both the employee's share and what would typically be the employer's share of Social Security and Medicare taxes. This effectively means that independent contractors pay self-employment tax. It is also important to note that independent contractors do not file W-2s, as they are not employees, but rather they file their taxes using the information from the 1099 forms they receive.