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 Vermont? What are the requirements?

Hiring Independent Contractors in Vermont

Hiring independent contractors can be a cost-effective way to run a business in Vermont. However, it is important to ensure that the workers meet the requirements to be classified as independent contractors.

To determine whether a worker can be classified as an independent contractor, the Vermont Department of Labor uses a three-part test that considers the worker’s degree of control over their work, whether the work is outside the usual course of the hiring entity’s business, and whether the worker is customarily engaged in an independently established trade, occupation, or business.

If a worker is classified as an independent contractor, the hiring entity is not required to pay payroll taxes, unemployment insurance, or workers’ compensation insurance for that worker. However, if the worker is misclassified and should have been classified as an employee, the hiring entity may be subject to taxes and penalties.

It is important to note that if a corporation hires independent contractors who perform work in Vermont, the corporation may still be subject to franchise tax [1.1]. Additionally, partnerships, limited liability companies, and S corporations that engage in activities in Vermont are required to file annual returns and declare estimated tax for each taxable period [3.1][2.3].

In summary, while hiring independent contractors can be a cost-effective way to run a business in Vermont, it is important to ensure that the workers meet the requirements to be classified as independent contractors and that the hiring entity complies with all tax and payment obligations.

Conclusion

Hiring employees as independent contractors to save money on taxes in Vermont is possible, but it is important to ensure that the workers meet the requirements to be classified as independent contractors. The Vermont Department of Labor uses a three-part test to determine whether a worker can be classified as an independent contractor. If a worker is misclassified, the hiring entity may be subject to taxes and penalties. Additionally, corporations that hire independent contractors who perform work in Vermont may still be subject to franchise tax, and partnerships, limited liability companies, and S corporations that engage in activities in Vermont are required to file annual returns and declare estimated tax for each taxable period.

Source(s):
Jurisdiction

Vermont