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Can I hire employees as independent contractors to save money on taxes in Maine? What are the requirements?

According to the Maine Department of Labor, hiring employees as independent contractors to save money on taxes is illegal in Maine. Maine law requires that workers be classified correctly as either employees or independent contractors based on certain criteria. If a worker is classified as an employee, the employer is responsible for paying certain taxes and providing certain benefits. If a worker is classified as an independent contractor, the employer is not responsible for these taxes and benefits. However, misclassifying employees as independent contractors can result in penalties and fines.

To determine whether a worker is an employee or an independent contractor, Maine uses a three-part test that considers the following factors:

  1. The degree of control the employer has over the worker’s work
  2. Whether the worker is engaged in an independent business or occupation
  3. Whether the work being performed is outside the usual course of the employer’s business

If a worker meets all three criteria, they may be classified as an independent contractor. However, if they do not meet all three criteria, they must be classified as an employee.

Additionally, every employer maintaining an office or transacting business in Maine that makes payment to a resident individual or a nonresident individual of wages subject to tax under this Part shall, if required to withhold federal income tax from those wages, deduct and withhold from those wages for each payroll period a tax so computed as to result in an amount being withheld from the employee’s wages during each calendar year that is substantially equivalent to the tax reasonably estimated to be due from the employee under this Part with respect to the amount of those wages included in the employee’s adjusted gross income during that calendar year [2.1].

Therefore, it is important to correctly classify workers as employees or independent contractors to avoid penalties and fines.

Source(s):
Jurisdiction

Maine