What is the impact of being classified as an independent contractor for tax purposes?

Being classified as an independent contractor for tax purposes typically means that the individual is considered self-employed. This classification has significant tax implications. One of the primary impacts is that independent contractors are responsible for paying their own taxes, which includes both income tax and self-employment tax.

Self-employment tax covers Social Security and Medicare taxes that are normally split between an employer and employee in traditional employment arrangements. Independent contractors often end up paying a higher effective tax rate because they are responsible for the full amount of these taxes instead of just half, which an employee would typically pay.

Moreover, while independent contractors can deduct business expenses, this deduction is from the income they report, not reducing the overall taxable income by a set percentage as might be implied in one of the other choices. Therefore, option B accurately reflects the financial reality faced by independent contractors, as they typically incur a higher tax burden due to the self-employment tax.