An independent contractor (also known as a freelancer) is a person or entity who agrees to work for another person or entity as a nonemployee. Because of the independent contractor’s status as a nonemployee, the contractor must pay their own Social Security and Medicare (FICA) taxes. And the person or entity hiring the independent contractor has no obligation to withhold income taxes from the contractor’s fees. It is important for the person or entity who hires a worker to properly classify the worker as an employee or as an independent contractor based on the IRS’s right-to-control test.

In Indiana, as in other states, the distinction between an independent contractor and an employee is significant for tax and legal responsibilities. Independent contractors in Indiana are responsible for paying their own Social Security and Medicare taxes, as they are not employees and therefore not subject to withholding by the hiring party. The hiring entity does not withhold income taxes from the fees paid to an independent contractor. Proper classification of a worker as an independent contractor or an employee is crucial and is determined based on the IRS's right-to-control test. This test evaluates factors such as the degree of control the hiring party has over the work performed and the worker's independence in terms of operation. Misclassification can lead to legal consequences and penalties for the hiring entity. Therefore, it is important for businesses in Indiana to carefully assess their working relationships with freelancers and consult with an attorney if there is any uncertainty regarding the correct classification.