In both Canada and the US, we often use tax classifications as a shorthand for “how” you work on assignment.
Because of the legal and tax requirements for each arrangement, there are different onboarding instructions, with different steps and documents required.
Here’s how to figure out what support documents are for you on this assignment:
In the United States #
What does it mean to be a W-2 Employee? #
Being a W-2 employee means that you are officially employed by Raise while you’re on assignment, and as such, taxes and other payroll deductions will be automatically withheld from your paycheck.
This simplifies your tax filing process since the deductions for federal, state, and possibly local taxes, along with Social Security and Medicare, are taken care of for you.
As a W-2 employee, you will need to fill out a W-4 Federal Tax Form and any relevant state tax forms to ensure the correct amount is withheld from your pay.
What does it mean to be a Freelancer? (1099 contractor) #
Being a freelancer (a “1099” contractor) means that you are already self-employed and providing services to Raise.
As a freelancer, you will provide Raise with applicable tax forms during onboarding and are responsible for managing your own services, including tracking your income and expenses.
This classification impacts:
- Tax Withholding: Unlike W2 employees, taxes are not automatically withheld from your payments.
- You are responsible for paying your own taxes such as federal, state, and possibly local taxes.
- You will complete a Form W-9 during onboarding.
- Social Security and Medicare: You are responsible for contributions to Social Security and Medicare payments
- Year-End Tax Forms: At the end of the year, you will receive a 1099-NEC form from Raise if you earn $600 or more during the tax year.
Year-End Tax Forms:
- If you are a US Citizen, at the end of the year, you will receive a From 1099-NEC from Raise if you earn $600 or more during the tax year.
- If you are not a US Citizen, you will receive a Form 1042-S if you had taxes withheld on your payments.
In Canada #
What does it mean to be a Contract Employee (“T4 employee”)? #
Being a T4 employee means you are officially employed by Raise while on assignment and as such, taxes and other payroll deductions will be automatically withheld from your paycheck.
This simplifies your tax filing process since Raise handles the deductions for income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from your pay.
At the end of the year, Raise will provide you a T4 slip, which reports your earnings and deductions. You use this form to file your income tax return.
What does it mean to be an Independent Consultant? #
Being an independent consultant in Canada means working as a self-employed professional who provides specialized expertise to businesses or individuals on a contract basis. Unlike traditional employees, independent consultants operate as their own business entities, often working with multiple clients at once.
If you’re an independent consultant, you’re not paid a regular wage like a contract employee. Your business will enter into an agreement with Raise, your business invoices for your services, and Raise then pays your business for its services. Our invoice terms are net 30.
This often means that you’re the employee of your own legally established business.
As you’re not an employee, taxes and other payroll deductions will not be automatically withheld from your paycheck. Your business is responsible for deductions such as income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from your pay. This also means that Raise does not provide a T4 slip for you to file y our income tax return.
There are certain tax advantages to working as an Independent Consultant; we advise you to speak to an accountant to learn more.