Being an employee VS Self Employment
The Internal Revenue Service defines an individual as being self-employed, for tax purposes, if:
- You carry on a trade or business as a sole proprietor or an independent contractor.
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself (including a part-time business).
When you are employed by a company, you are considered an employee. Employees are on the company payroll, and the employer withholds federal and state taxes, Social Security, and Medicare.
Employees are provided with unemployment and workers' compensation insurance. Employees may be offered benefits packages that include paid sick leave, vacation, health insurance, and 401(k) or other retirement plan participation.
If you're self-employed, you are responsible for paying your own taxes to the Internal Revenue Service (IRS) and to your state tax department.
Even if you do not owe any income tax, you must complete Form 1040 and Schedule SE to pay self-employment Social Security tax.
In addition to income taxes, self-employed workers must also pay Social Security and Medicare taxes in the form of SECA (Self-Employment Contributions Act).
