Business & Professional Practice

Lesson 3 of 10

Work relationships and U.S. tax basics

A work label does not by itself decide whether someone is an employee or an independent contractor. Agencies generally consider the actual relationship, including control and economic realities, under applicable law. Booth rental is a space arrangement, not a shortcut around labor or tax rules. U.S. forms have distinct purposes, and requirements depend on the worker, business, and situation.

Key points

• Employees commonly receive a W-2 reporting wages; employers handle withholding and payroll obligations.
• A W-4 tells an employer information used to calculate federal income-tax withholding.
• Businesses may report payments to eligible nonemployees on a 1099 form when required.
• A self-employed practitioner may report business income and expenses on Schedule C, as applicable.
• Some taxpayers must pay estimated taxes periodically; verify federal and state rules and due dates.
• Form I-9 is used by U.S. employers to verify identity and employment authorization for employees.
• Keep booth-rental terms, receipts, and evidence of who controls pricing, scheduling, and client relationships.

Key terms

Independent contractor

A worker classified under applicable legal tests as operating independently rather than as an employee.

Booth rental

An arrangement to rent work space; it does not by itself determine worker classification.

W-2

U.S. wage and tax statement generally provided to an employee.

W-4

U.S. employee withholding certificate used by an employer to determine withholding.

1099

A family of U.S. information returns used to report certain payments or income.

Schedule C

IRS schedule commonly used by eligible sole proprietors to report business profit or loss.

Form I-9

U.S. employment eligibility verification form completed for employees as required.