Which statement is true regarding independent contractors and taxes?

Which statement is true regarding independent contractors and taxes?

• A. Brokers withhold taxes for independent contractors
• B. Brokers don't withhold income or Social Security taxes for independent contractors
• C. Independent contractors pay higher tax rates
• D. Independent contractors receive tax refunds automatically

Answer: (B)

The statement that brokers don't withhold income or Social Security taxes for independent contractors is accurate because independent contractors are considered self-employed. This means they are responsible for reporting their own income and paying their taxes directly to the IRS. Unlike employees, where employers withhold taxes for Social Security, Medicare, and income tax, independent contractors receive their full payment without any deductions for taxes. Consequently, independent contractors must proactively manage their tax obligations, which include making estimated tax payments throughout the year. This structure allows greater flexibility for independent contractors but requires them to be disciplined about their tax responsibilities.

The statement that brokers don't withhold income or Social Security taxes for independent contractors is accurate because independent contractors are considered self-employed. This means they are responsible for reporting their own income and paying their taxes directly to the IRS. Unlike employees, where employers withhold taxes for Social Security, Medicare, and income tax, independent contractors receive their full payment without any deductions for taxes. Consequently, independent contractors must proactively manage their tax obligations, which include making estimated tax payments throughout the year. This structure allows greater flexibility for independent contractors but requires them to be disciplined about their tax responsibilities.