Independent Contractor

                An independent contractor is a person who contracts to perform services for others without having the legal status of an employee.  Most people who qualify as independent contractors follow their own trade, business or profession.  They are in business for themselves.

            There are advantages of being an independent contractor.  Independent contractors are virtually your own boss.   There is a lot of freedom that comes in being in business for yourself.  You can choose how, when, and where to work, for as much or little time as you want.

            Independent contractors also are masters of their economic fate.  The amount of money you make is directly related to the quality and quantity of your work.  Independent contractors don’t have to ask their boss for a raise; if they want to earn more, they just have to go out and find more work.  And because most independent contractors are not dependent on one single company for their livelihood, the hiring and firing decisions of any one company don’t impact IC’s as they do regular employees.

            The OASDI program limits the amount of earnings subject to taxation for a given year.  The annual limit this year in 2008 is $102,000.  The OASDI tax rate in 2008 for wages paid is set by statute at 6.2 percent for employees and employers, each.  The OASDI tax rate for self-employment is 12.4 percent in 2008.  The HI tax is provided primarily by taxes levied on wages and net self employment income.  It is mandatory for state and local government workers hired since April 1, 1986.  HI tax is levied on all earnings.  Since 1992, only 92.35 percent of net self-employment is taxable and half of the SECA (Self Employment Contributions Act) taxes so computed is deductible for federal income tax purposes.

            I would tell my employee that our company could refund the surplus amount of FICA taxes paid.  Also, you can get back the excess Social Security that was withheld when you file.  However, claiming that credit for excess Social Security taxes on your return doesn’t guarantee that you’ll get a check from the IRS for that amount.

Works Cited

Bell, Kay.  Tax tips: Social Security  16 March 2007

            <http://www.bankrate.com/brm/itax/tips/20010322a.asp>