Certified Payroll Professional Practice Exam 2025 - Free CPP Practice Questions and Study Guide

The IRS classifies independent contractors as self-employed workers who are responsible for their own taxes. This classification implies that independent contractors operate as distinct entities from the companies they work for. They provide services under a contractual agreement, and as a result, they are not entitled to the same benefits and securities that employees receive, such as unemployment insurance, health benefits, or retirement plans.

Independent contractors must handle their own tax obligations, which includes reporting their income, paying self-employment taxes, and making estimated tax payments throughout the year. This level of responsibility for tax and business aspects is a fundamental characteristic that distinguishes them from employees, who typically have taxes withheld from their paychecks and may not need to file estimated taxes.

In terms of the other options provided, classifying independent contractors as employees would incorrectly imply a level of control and benefit entitlement akin to that of traditional employees. Similarly, designating them as part-time employees or temporary staff does not accurately reflect their independent status or the nature of their work arrangements. By understanding this classification, businesses can ensure compliance with tax regulations and appropriately manage their workforce.