Employee vs. Independent Contractor: Understanding Your Role as an Aesthetician

BySkinProfessor

As an aesthetician, your career path can take various forms, with two common classifications: employee and independent contractor. Understanding the differences between these two roles is crucial, as will impact your work environment, tax obligations, and benefits. In this blog post, we’ll explore the differences between th two roles and what to do if you’ve been misclassified as an independent contractor.

Understanding the Basics

Employee:
An aesthetician classified as an employee typically works for a specific employer, such as a spa or salon, under a defined set of conditions. Employees often receive a consistent paycheck, benefits (like health insurance and paid time off), and are subject to the employer’s policies and procedures.

Independent Contractor:
On the other hand, an independent contractor is self-employed and provides services to clients on a contractual basis. This means they have more control over their work schedule, business operations, and pricing. However, independent contractors do not receive employee benefits and are responsible for their own business expenses, taxes, and insurance.

Key Differences to Consider

  1. Control and Independence:
  • Employees are generally subject to the control of their employer regarding work hours, methods, and procedures.
  • Independent contractors have the freedom to set their own hours and decide how to perform their services.
  1. Payment Structure:
  • Employees are typically paid a regular salary or hourly wage and may receive benefits such as overtime pay.
  • Independent contractors bill clients for their services and may charge by the hour or per service, without guaranteed minimum earnings.
  1. Tax Responsibilities:
  • Employers withhold taxes from employee paychecks, including Social Security and Medicare taxes and liable to pay 50% of taxes.
  • Independent contractors are responsible for paying self-employment taxes and must report their income on Schedule C (Form 1040).
  1. Benefits and Protections:
  • Employees often receive benefits such as health insurance, retirement plans, and paid leave.
  • Independent contractors do not receive these benefits and must secure their own insurance and retirement savings.

How to Determine Your Classification

To determine whether you are classified as an employee or an independent contractor, consider the following factors:

  • Nature of Your Work: Are you performing set protocols where products are provided? If yes, you’re an employee.
  • Level of Control: Does your employer dictate your work hours, methods, and location? If so, you’re an employee.
  • Financial Arrangements: Do you receive a regular paycheck, or do you invoice for your services? Regular pay indicates employee status, while invoicing suggests independent contractor status.

Still not sure whether you’re an employee or an independent contractor? Fill out the SS-8 form and mail it to the IRS and they will promptly mail you back a determination.

What to Do If You’ve Been Misclassified

If you believe you have been misclassified as an independent contractor when you should be an employee, it’s important to take action. Misclassification can lead to significant tax implications and loss of benefits. Here’s how to correct it:

  1. Gather Documentation: Collect any employment agreements, pay stubs, and communications with your employer that support your claim.
  2. Discuss with Your Employer: Approach your employer or the HR department to discuss your concerns. They may not realize the misclassification and could be willing to correct it.
  3. File form 8919, “Uncollected Social Security and Medicare Tax on Wages,” is used by individuals who believe they were misclassified as independent contractors rather than employees. This form allows them to report uncollected Social Security and Medicare taxes that should have been withheld by an employer. It calculates the amount of uncollected taxes based on wages received during the tax year and is filed along with the individual’s federal income tax return.
  4. Amend Your Tax Return: If you’ve already filed your taxes as an independent contractor but believe you should be classified as an employee, you may need to amend your tax return. Use Form 1040-X (Amended U.S. Individual Income Tax Return) to correct any errors.
  5. Consult a Professional: If you’re unsure about your classification or how to correct it, consider consulting with a tax professional or an attorney who specializes in employment law.

When to File Form 8919

You should file Form 8919 if:

  1. You were treated as an independent contractor: If you received a Form 1099-MISC or 1099-NEC instead of a W-2, but you believe you should have been classified as an employee.
  2. You had Social Security and Medicare taxes withheld incorrectly: If your employer did not withhold Social Security and Medicare taxes or if those taxes were not collected from your pay.
  3. You are not able to collect the uncollected taxes from your employer: If you were unable to convince your employer to correct your classification and withhold the appropriate taxes.
  4. You earned wages: You need to have received wages (not just non-employee compensation) from the employer in question.

How to File Form 8919

Here are the steps to file Form 8919:

  1. Obtain Form 8919: You can download Form 8919 from the IRS website or use tax preparation software that will generate the form for you.
  2. Complete the Form:
  • Part I: Enter your name, Social Security number, and address.
  • Part II: Here you will provide details about your employer, including their name, address, and Employer Identification Number (EIN) if known.
  • Part III: This section is for reporting the wages you received and the uncollected Social Security and Medicare taxes. You will calculate the amount of uncollected taxes based on your wages for the tax year.
  1. Calculate Uncollected Taxes:
  • Use the following formulas:
    • Social Security Tax: Multiply your total wages by 6.2% (0.062).
    • Medicare Tax: Multiply your total wages by 1.45% (0.0145).
  • Add these two amounts together to determine the total uncollected tax.
  1. Attach to Your Tax Return:
  • File Form 8919 with your federal income tax return (Form 1040, 1040-SR, or 1040-NR).
  • Make sure to include it with your return if you are filing by mail. If you are e-filing, follow the software instructions on how to attach the form.
  1. Keep Copies: Retain copies of the form and any supporting documentation for your records.

Important Details of Form 8919

  • Purpose: The form helps you report uncollected Social Security and Medicare taxes when you believe you should have been classified as an employee.
  • Lines and Sections:
  • Line 1: Enter your total wages received from the employer you are reporting.
  • Line 2: Calculate the uncollected Social Security tax (6.2% of your wages).
  • Line 3: Calculate the uncollected Medicare tax (1.45% of your wages).
  • Line 4: Total uncollected taxes (sum of lines 2 and 3).
  • Signature: You must sign and date the form to certify that the information provided is accurate.

Key Considerations

  • Deadline: Form 8919 is due on the same date as your federal income tax return, including extensions. Typically, this is April 15th for most taxpayers.
  • Consult a Professional: If you’re unsure about your classification or have complex tax situations, consider consulting a tax professional for guidance.
  • Employer Responsibilities: Employers are required to classify workers correctly. If you believe you were misclassified, you may also file a Form SS-8 with the IRS to request a determination of your status.

Conclusion

Filing Form 8919 is an important step for individuals who believe they were misclassified as independent contractors and did not have the appropriate Social Security and Medicare taxes withheld. By understanding when and how to file this form, you can ensure that your tax obligations are met correctly and avoid potential penalties. If you have any doubts or need assistance, it’s always a good idea to consult with a tax professional.

Understanding the distinction between an employee and an independent contractor is vital for aestheticians. It not only affects your work experience but also your tax obligations and benefits. If you find yourself misclassified, take proactive steps to address the issue and ensure that you are receiving the appropriate classification and support. Your career and financial future depend on it!

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