How do FICA and self-employment tax differ when worker classification is wrong?

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Employees generally have FICA taxes withheld from wages, with the employer paying a matching share. Self-employed individuals generally p...

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At fictional Northstar Field Services, Lee works under close supervision, uses company equipment, follows assigned hours, and cannot hire helpers. If Lee is treated as an independent contractor, Lee may pay self-employment tax and receive no wage withholding. The correct classification depends on behavioral control, financial control, and the relationship of the parties.

For EA exam purposes, identify whether the worker is an employee, statutory employee, statutory nonemployee, or independent contractor. Then determine reporting: wages, payroll taxes, withholding, or Schedule C and self-employment tax. Misclassification can also affect deductions, penalties, and employer obligations.

Do not assume a written contract controls. Calling someone a contractor does not make it true if facts show employee status. Conversely, a genuinely independent business owner may properly report net profit and self-employment tax.

The exam often asks for the correct treatment, not how to recover past overpayment. In practice, prior-year corrections can be complex, so a representative should review facts and procedures carefully. Practice more in our EA Part 2 question bank.

How do FICA and self-employment tax differ when worker classification is wrong?

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