Most businesses have heard from their lawyers or accountants that for tax purposes, it is critical to determine whether an individual who provides services is an employee or an independent contractor. Generally, if an individual is determined to be an employee, income, social security and Medicare taxes must be withheld on the wages paid, and the employer must pay federal unemployment taxes. Tax withholding is not required for payments to an independent contractor, who provides a Social Security Number or Federal Employer Identification Number.

In general, anyone who performs services for a business is an employee if the business controls what will be done and how it will be done. If the business only controls the final results and not how the result is accomplished, the person performing services is generally an independent contractor....

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