Freelancer or Employee? The Contract Test Behind Georgia’s 1% Tax
RIGHTSIDE INSIGHTS · SMALL BUSINESS · CONTRACTS · 2026
An invoice can say “services”. The working day may say “job”. For Georgia’s small-business tax, that difference can change the rate from 1% to the ordinary salary treatment.
Why the label is not enough
A small-business certificate can be valuable to an individual entrepreneur who sells an eligible service. It does not apply to employment income. Georgia’s Revenue Service therefore examines the actual relationship when a former employee, or someone who works closely with one client, invoices as an independent contractor. The Tax Code allows the authority to look through a structure that does not reflect its economic substance.
The point is not that one customer automatically means employment. A new consultant may have one large client. The point is whether the customer buys a separately delivered result or, in reality, directs a member of its own workforce. A written service agreement is evidence. Daily behaviour, correspondence and payment practice are evidence too.
| Question | May suggest a separate business | May suggest employment |
|---|---|---|
| Control | The provider chooses the method and timing within a delivery deadline | A manager sets daily hours and supervises routine tasks |
| Tools and costs | The provider supplies equipment and bears normal business costs | The customer provides the work tools and covers ordinary expenses |
| Risk | Payment is tied to deliverables, corrections or milestones | A fixed salary continues regardless of a particular output |
| Benefits | Time away is the provider’s commercial decision | Paid leave, health insurance and staff benefits are supplied |
| Market | The provider can serve other clients | The arrangement expects exclusivity or near-total dependence |
No single row decides the case. Read them together. The source article describes a Revenue Service questionnaire that asks about a client providing equipment, paid holidays or insurance and about heavy dependence on one payer. Such a questionnaire is an aid to analysis, not a legal guarantee or a substitute for reviewing the whole arrangement.
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The common “same job, new invoice” mistake
Suppose an employee previously worked in a company’s development team, reported to its manager and received a monthly salary. They now register as an entrepreneur and invoice the same company, but the hours, reporting line, equipment, benefits and tasks stay the same. Replacing the word “salary” with “service fee” does not necessarily replace the underlying employment. The Revenue Service may treat the payment as wages and assess ordinary income tax, potentially for past periods as well.
The reverse can also be true. A skilled person may use the client’s software repository and attend planning meetings while genuinely providing an independent project. The facts should be documented: a defined scope, deliverables, responsibility for correction, commercial risk, freedom over working methods and realistic ability to serve others. Avoid artificial terms written only to satisfy a tax test if the real work contradicts them.
Another boundary: what service is being sold?
Even a truly independent contractor does not automatically get the 1% rate. Government Ordinance No. 415 excludes some activities from the small-business status and removes other income from the special base. Consulting is a particularly important example. “IT services” might mean code development, systems maintenance or advice about technology; those are not always treated alike. The description in the agreement, invoices and actual output must be consistent.
What to keep before the first invoice
Keep the signed agreement, statements of work, briefs, completed deliverables, invoices, payment records and communication showing how the work was controlled. Where the relationship changes from employment, document what actually changed, not simply the contract title. If the classification is borderline and the amounts are material, obtain an individual tax analysis or advance ruling before treating the fee as 1% income.
A person can have a salaried job and a separate eligible business. The two income streams need separate classification and reporting. It is the true character of each payment, not the presence of a certificate, that determines its tax treatment.
General information as of October 2026. The result for a particular taxpayer depends on the current law, supporting documents and the facts of the activity.