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- An independent contractor is generally considered any individual who provides goods to or performs a service for an entity in exhange for compensation and is not considered an employee of the entity. Common examples of independent contractors include freelance writers and photographers, as well as business consultants. Professionals such as dentists, lawyers and veterinarians operating their own practices are also considered to be independent contractors in most cases.
- If you perform your services on a repeat basis for the same individual or business, there may be confusion as to whether you are an employee or independent contractor. In general, the IRS views you as an independent contractor if you have some freedom of choice regarding your ability to accept or refuse assignments and the methods you use when doing your work. An employer has the right to exercise greater control over your actions than someone hiring you on a contract basis.
- As an independent contractor, you are responsible for managing your own income tax situation, as the entity hiring your services will not withhold Medicare or Social Security taxes from your payments. You are also subject to the self-employment tax. At the end of the year, you should receive a Form 1099-MISC from any entity that has paid you at least $600 for your services during the year. You'll need to furnish your own fringe benefits, such as health insurance and disability insurance, as well.
- If you're about to begin to work for an entity that frequently hires independent contractors, it will probably require that you sign a formal independent contractor agreement document. Examine the document carefully to ensure you understand your rights and obligations. If you believe an entity is attempting to misclassify you as an independent contractor instead of employee, perhaps to avoid paying taxes or benefits, you can ask the IRS to resolve the matter
Independent Contractor Identification
Distinction
Implications
Considerations
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