Independent Contractor or Employee? How the Difference Affects Your Taxes

pcmag.com:

California’s rideshare and delivery drivers have been suffering from a bad case of whiplash (figuratively speaking) because lawmakers, judges, and voters disagree about their job classification. How it shakes out will affect how much they pay in taxes, along with other employment rights.

Many of these drivers started as independent contractors until 2019 when Governor Gavin Newsom signed into law California Assembly Bill 5 (AB5)(Opens in a new window), reclassifying them as employees. Then voters in the state passed Proposition 22(Opens in a new window) (58% in favor) in late 2020, which reclassified them again as independent contractors. Prop 22 also included a number of wage and labor policies, such as a 12-hour work limit during any 24-hour period, company-provided healthcare subsidies, and disability payments.

The following year, Alameda County Superior Court Judge Frank Roesch ruled that some elements of Prop 22 were unconstitutional(Opens in a new window) and that the measure was unenforceable. Proponents, specifically a coalition called Protect App-Based Drivers & Services, filed its own appeal of the judge’s ruling and presented a case in December 2022. The court is expected to rule within 90 days of that hearing. The case may eventually make its way to the California Supreme Court.

California’s current struggle is only one battle in the decades-long quest to determine the difference between independent contractors and employees, and how it shakes out could affect how you file your taxes and how much money you have to pay.

The distinction between the two worker classifications is critical. It legislates how income taxes are paid, for one thing, and how much someone pays. 

Employees receive an IRS Form W-4 before