Legal Landscape:
The Difference between an Independent Contractor and an Employee

Karen Thickstun, NCTM

MTNA Business Digest, Volume 4, Issue 2

January 2025

When you work for someone else, whether teaching at a community arts school, or apprenticing with a home studio teacher, or collaborating with multiple teachers at an academy or music store, you are being hired as either an employee or independent contractor.

An important first step before accepting a teaching position is to understand if you are being hired as an employee or independent contractor. This can be tricky because the same type of teaching position might have different answers. One music store might hire you as an employee, but a different music store in the same city might hire you as an independent contractor. It is up to the music store (or any employer) to identify the correct status for its teachers, in compliance with IRS guidelines.

Taxes are a major reason for understanding the differences between these two scenarios. As an employee, your employer will handle much of the work related to income tax withholding and FICA taxes. As an independent contractor, you are responsible for all aspects of income tax reporting and FICA taxes. FICA (Federal Insurance Contributions Act) taxes are your contributions to Medicare and Social Security programs.

There are pros and cons to each scenario as well as varying degrees of control and freedom for the teacher.

Employee

If you are an employee, the organization holds control. It establishes what work will be done and when/where/how it will be done. There is a supervisor who directly oversees your work. The organization pays you a wage (or salary) and withholds income and FICA taxes. It pays FICA taxes (for Social Security/Medicare) on your wages—7.65% is paid by the organization on your behalf; you pay 7.65% through payroll withholding.¹ The employee receives a W-2 statement and reports their income on Form 1040. The employee does not deduct most expenses because the employer is responsible for providing essential facilities, equipment and supplies.

Additionally, an employer may:

• set non-negotiable wages
• provide training
• restrict the individual from working for other organizations
• require attendance at meetings
• provide benefits (health insurance, retirement, etc.)
• reimburse certain expenses related to the job

A sample contract for an employee may be found here.

Independent Contractor (Or Self-Employment)

If you are an independent contractor, you control the when/where/how of what you do, and you are responsible for all taxes. The organization pays the independent contractor a fee and engages him/her for a particular result. The independent contractor determines the means and method of accomplishing the result. The organization does not withhold income taxes and does not pay FICA taxes (Social Security/Medicare) on your compensation. The organization will provide the independent contractor with a 1099 form if $600 or more was paid to them during the year. The independent contractor reports this income on Schedule C and deducts business expenses related to this income. These expenses must be “ordinary and necessary” and clearly documented.

The independent contractor also files Schedule SE, which calculates Social Security/Medicare taxes that must be paid with the tax return (currently 15.3% on the net profit of the business, although half is then taken as a deduction on Form 1040). Because the employer does not withhold taxes, the independent contractor makes quarterly estimated tax payments for federal/state taxes (the IRS prefers its money up front!). (Note: Most home studio owners are sole proprietors and follow these same tax procedures.)

Additionally, an independent contractor:

• is in business for themself and is free to offer services to other organizations
• invests in equipment and supplies and is responsible for their expenses
• assumes the risk of profit or loss in providing the service
• may negotiate fees and submits an invoice for payment
• establishes a schedule to provide the desired result
• usually possesses a specialized skill
• is free to hire someone else to perform the service (sub-contractor)
• is responsible for providing their own benefits (health insurance, retirement, etc.)

A sample contract for an independent contractor can be found here.

Which Is Preferable?

In terms of the financial bottom line, it is impossible to say whether employee or independent contractor is the best option. Every situation is different. Being an employee for an organization might mean a lower income per lesson, but the employer provides teaching space and instrument, and perhaps insurance benefits. An independent contractor might be able to charge significantly more per lesson but will be responsible for expenses. Certain expenses, such as health insurance or purchasing an instrument, can be extremely high.

It is important to understand the financial implications of each teaching situation. For the most accurate information and advice, please consult a professional tax advisor. Equally important is to consider what level of control you are comfortable with and the amount of freedom you personally require. While an employer has the right to dictate how work will be done, some employers may provide a high degree of individual freedom. One employer might allow the teacher to interview prospective students and decide which to accept; another might assign students to the teacher based solely on schedule availability.

Before accepting a position, ask questions about pay rates, scheduling, policies, curriculum and expectations beyond teaching (such as assisting with recitals or attending meetings). Scrutinize the contract and its terms. Talk to other teachers—those who work for the organization as well as those who do not—to get a sense of the organization’s professional image.

Understanding the type of position you are considering will help you make an informed decision, and you’ll be fully aware of the tax implications from the beginning.

Note

1. FICA tax rates of 15.3 percent (7.65% paid by employer; 7.65% paid by employee) are assessed on the first $168,600 of income for 2024. https://www.investopedia.com/2021-social-security-tax-limit-5116834#:~:text=Key

A portion of this article first appeared in the American Music Teacher column, “It’s All Your Business,” December 2013/January 2014.

Karen Thickstun, NCTM, formerly taught piano pedagogy at Butler University and directed the Butler Community Arts School. She holds degrees in music, economics and business. Thickstun is MTNA immediate past president.