Ask Reggi Your Question Now

Reggi is the free generative AI assistance for regulatory compliance
Ask a Question

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

Hiring Independent Contractors in Massachusetts

In Massachusetts, employers are required to withhold state income tax from wages paid to employees [1.1]. Independent contractors, on the other hand, are responsible for paying their own taxes and are not subject to withholding by the employer. However, misclassifying employees as independent contractors can result in penalties and legal consequences [2.1].

Requirements for Hiring Independent Contractors

To hire independent contractors in Massachusetts, the following requirements must be met [2.1]:

  • The worker must be free from the control and direction of the employer in connection with the performance of the service, both under the contract for the performance of service and in fact.
  • The service performed by the worker must be outside the usual course of the business of the employer.
  • The worker must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.

If these requirements are not met, the worker may be considered an employee and subject to withholding by the employer [2.1].

Consequences of Misclassifying Employees

Misclassifying employees as independent contractors can result in penalties and legal consequences, including:

  • Liability for unpaid taxes, including income tax, Social Security, and Medicare taxes [2.1].
  • Penalties for failure to withhold and remit taxes [2.1].
  • Penalties for failure to file required tax forms [2.1].
  • Liability for unpaid wages, overtime, and other benefits required by law [2.1].
  • Legal action by the misclassified worker, including claims for unpaid wages, overtime, and other benefits [2.1].

Conclusion

While hiring independent contractors may seem like a way to save money on taxes, it is important to ensure that the worker meets the requirements for independent contractor status. Misclassifying employees as independent contractors can result in penalties and legal consequences.

Source(s):
Jurisdiction

Massachusetts