The difference between an employee and freelancer for tax purposes is that employees have taxes withheld from their paychecks by their employer, while freelancers are responsible for paying their own taxes.
- Employee taxes: Employers are responsible for withholding federal income tax, Social Security, and Medicare taxes from employees' paychecks. The employer will also typically file a W-2 form with the IRS, reporting the employee's annual income and taxes withheld.
- Freelancer taxes: Freelancers, also known as independent contractors, are responsible for paying their own taxes. They will typically file a Schedule C form with their individual tax return, reporting their income and expenses. They will also be required to pay self-employment taxes, which include Social Security and Medicare taxes.
- Deductions: Employees are generally not able to claim many deductions for business expenses, as most of the expenses are paid by their employer. Freelancers, on the other hand, may be able to claim deductions for business expenses, such as office expenses, mileage, and equipment.
- Benefits: Employees are often eligible for benefits such as health insurance, retirement plans, and paid time off. Freelancers are generally not eligible for these benefits and must provide for themselves.
- Control: An employee generally works under the direction and control of an employer, while a freelancer is in control of the work they perform, their schedule and the way they perform their services.
It's important to note that the distinction between employees and freelancers is not always clear-cut, and the IRS has specific rules and guidelines that determine whether a worker is considered an employee or a freelancer. It's important to consult with a tax professional or accountant to ensure compliance with the IRS regulations.
