From the Nolo Business & Human Resources Center
Working as an Independent Contractor FAQ
Quick answers for consultants, freelancers, and
contractors.
What's Below:
What is an independent
contractor? Should I become an independent contractor?
Do I have to pay taxes on my
freelance income?
How much should I charge
clients and how can I make sure they pay me?
Do I need to use written
agreements when I do contract work for clients?
Who decides whether I'm an
employee or an independent contractor? What if I am determined to be an
employee?
What is an independent
contractor? Should I become an independent contractor?
An independent contractor (IC) is someone who runs his or her own business.
Independent contractors earn their livelihoods from their own independent
businesses instead of depending upon an employer to earn a living. Independent
contractors are sometimes called consultants, freelancers, self-employed, and
even entrepreneurs and business owners.
Unlike an employee who works for one employer, independent contractors
typically work for a number of different clients, tackling particular jobs or
projects that require special expertise.
There can be many advantages to being self-employed:
- You are your own boss.
- You may be paid more than employees.
- No federal or state tax is withheld from your pay.
- You can take increased business deductions.
Despite the advantages, however, being self-employed is no bed of roses. Here
are some of the major drawbacks.
- You have no job security.
- You might not get paid.
- You must pay self-employment taxes.
- You may be personally liable for business debts.
- You have no employer-provided benefits.
- You have no unemployment insurance benefits.
- You have no employer-provided workers' compensation.
- You have few labor law protections.
For more information, see Pros and Cons
of Freelancing, Contracting, and Consulting.
Back to top
Do I have to pay taxes on
my freelance income?
When you work as an independent contractor, you have to pay income tax, just
like an employee. Unlike an employee, however, you won't have any taxes withheld
from your paycheck to cover income tax, Social Security, and Medicare. And also
unlike an employee, you can't wait until April 15 to pay all of your taxes due
for the previous year. Instead, you have to pay estimated taxes four times a
year.
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