The Truth about Taxes
It’s time for some truth about independent contractors and the taxes they pay.
One of the arguments made against independent contracting by state and federal agencies is that labor and tax laws are somehow being evaded by companies that engage the services of independent contractors. These opponents want independent contractors to be reclassified as employees so that the businesses—not the contractors themselves—become responsible for collecting taxes.
So, is there a problem with independent contractors paying taxes as they should? The answer is no.
Consider these two myth-shattering facts: The IRS says accurate reporting of income from contractors (who receive 1099 forms) is virtually identical to that of employees (who receive W-2s). More importantly, according to the U.S. Treasury, “independent contractors and their clients tend to pay higher levels of taxes, especially Social Security and Medicare taxes, than employees and employers.”
Contrary to the myth opponents spread, independent contracting—not wage employment—delivers greater tax revenue.