Internal Revenue Service United States Department of the Treasury
Module 14: Self-Employment Income and Self-Employment Tax

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Employee and Independent Contractors

Workers can be classified as employees or independent contractors.


  • perform services for the employer. The employer directs or controls when, where, and how the employee performs the work.
  • include teachers, restaurant workers, factory workers, and managers of corporations.
  • receive from their employers Form W-2, Wage and Tax Statement, which reports employee earnings.

Independent Contractors

  • perform services for others. The recipients of the services do not direct or control the means or methods by which the independent contractors accomplish their work. The recipients do control the results of the work; they decide whether the work is acceptable.
  • are self-employed.
  • may include carpenters, artists, and consultants.
  • may receive Form 1099-MISC, Miscellaneous Income, from the recipient of the services. Form 1099-MISC reports payments made to the self-employed worker.
  • must report all income (including cash) received whether the worker received a Form 1099-MISC or not.

An individual can be an employee as well as a self-employed independent contractor.

  • Lucille works full-time as a teacher (employee). On the weekends she works in her own business as a graphic artist (self-employed).

An activity is a business if

  • its primary purpose is for income or profit, and
  • the activity occurs continuously and with regularity.

Generally, a hobby is not a business.


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