What's the difference between a contractor and an employee, and why does it matter?

The distinction hinges on control: an employee works under the employer's direction on how, when, and where to do the job, while an independent contractor controls their own methods and runs their own business. It matters enormously for both sides. Employers must withhold taxes, pay the employer half of payroll taxes, and provide certain benefits and protections for employees, but not for contractors — which is why misclassifying a worker to dodge those obligations carries serious IRS and state penalties. For the worker, contractor status means receiving a 1099, paying your own self-employment tax, and getting no unemployment or workers' comp, but with more deductions and independence. The IRS weighs behavioral control, financial control, and the relationship's nature. If you're unsure how a client treats you, clarify it in writing before starting, because the classification drives your taxes and rights.