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

Based on the information provided in the context documents, it is important to note that North Dakota has specific regulations regarding the classification of workers as independent contractors.

Requirements for Hiring Independent Contractors in North Dakota

To determine whether a worker can be classified as an independent contractor, North Dakota uses the “ABC test.” This test considers three factors:

  1. Control: The worker must be free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. Business: The worker must perform work that is outside the usual course of the hiring entity’s business.
  3. Customarily engaged: The worker must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the work performed.

If a worker does not meet all three of these criteria, they must be classified as an employee rather than an independent contractor.

Tax Implications

If a worker is classified as an independent contractor, the hiring entity is not required to pay state unemployment insurance taxes or state income taxes on behalf of the worker. However, the hiring entity may still be required to pay federal taxes, such as Social Security and Medicare taxes, on behalf of the worker.

It is important to note that misclassifying employees as independent contractors can result in penalties and fines.

[2.1] provides information on income tax exemption for new and expanding businesses, but it is not relevant to the query. [2.6] provides information on new jobs credit from withholding statement, but it is not relevant to the query. [2.7] provides information on adjustments for sale or lease of revenue-producing enterprise to beginning businessman, but it is not relevant to the query.

Therefore, to answer your question, it is important to follow the “ABC test” to determine whether a worker can be classified as an independent contractor in North Dakota. Misclassifying employees as independent contractors can result in penalties and fines.

Source(s):
Jurisdiction

North Dakota