Business FinancesQuestion 1161 of 1605
The difference between an employee and an independent subcontractor matters for taxes primarily because:
a.Employers must withhold payroll taxes for employees but not for legitimate subcontractors
b.Employees never receive a W-2
c.Subcontractors must be paid in cash
d.Independent subcontractors receive a W-2
Explanation
For employees, the contractor withholds and pays payroll taxes and issues a W-2. A legitimate independent subcontractor is paid gross and issued a 1099, handling its own taxes. Misclassifying employees as subcontractors to avoid payroll taxes exposes the contractor to back taxes and penalties.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)