What is a key difference in tax treatment between employees and independent contractors?

The key difference in tax treatment between employees and independent contractors is that independent contractors pay self-employment taxes. This is important because independent contractors are considered self-employed individuals who operate their own businesses. As such, they are responsible for covering their own tax obligations, which include both Social Security and Medicare taxes. These taxes are typically withheld from employee wages by employers, but independent contractors must calculate and pay them directly to the IRS when they file their tax returns.

Understanding the distinction in tax responsibilities helps clarify the financial implications and responsibilities that come with working as an independent contractor versus being an employee, who generally has fewer tax obligations beyond income tax due to employer withholding.