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 North Carolina, as in other states, the distinction between an independent contractor and an employee is significant for tax and legal responsibilities. Independent contractors, often referred to as freelancers, operate under a different set of regulations compared to employees. They are responsible for paying their own Social Security and Medicare taxes, known as self-employment taxes, and are not subject to tax withholding by the hiring party. The classification of a worker as an independent contractor or an employee in North Carolina is guided by the IRS's right-to-control test, which examines factors such as the degree of control the hiring party has over the work performed and the worker's independence in the business relationship. It is crucial for businesses to correctly classify workers to avoid penalties and liabilities for failing to withhold and pay taxes, and to ensure compliance with labor laws. Misclassification can lead to legal consequences, including fines and back payment of taxes and benefits.